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Mankiw - Chapter_11 - Chapter 11 Public Goods and Common...

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1 Mankiw, Principles of Economics Prepared by Moon Young BAEK Yonsei University, Economics Chapter 11 Public Goods and Common Resources 11.1 Introduction z In this chapter, we examine the problems that arise for goods without market prices . When a good does not have a price attached to it, private markets cannot ensure that the good is produced and consumed in the proper amounts. z One of the Ten Principles: Governments can sometimes improve market outcomes . 11.2 Different kinds of goods z Two characteristics of goods: Excludability: the property of a good whereby a person can be prevented from using it. Rivalry: the property of a good whereby one person’s use diminishes other people’s use. z Private goods: goods that are both excludable and rival z Public goods: goods that are neither excludable nor rival z Common resources: goods that are rival but not excludable. z A natural monopoly when a good is excludable but not rival [Figure 1]
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2 Mankiw, Principles of Economics Prepared by Moon Young BAEK Yonsei University, Economics z In this chapter, we examine goods that are not excludable and are available to everyone free of charge: public goods and common resources This topic is closely related to the study of externalities. For both public goods (e.g., national defense) and common resources (e.g., fish in the ocean), externalities arise because something of value has no price attached to it. With such externalities, private decisions about consumption and production can lead to an inefficient allocation of resources, and government intervention can potentially raise economic well-being.
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