Chapter7 - Public Goods Chapter 7 7.1 Optimal Provision of...

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Public Goods 7.4 Conclusion 7.3 Public Provision of Public Goods 7.2 Private Provision of Public Goods 7.1 Optimal Provision of Public Goods Chapter 7 Private trash collection, financed by a voluntary fee paid by neighborhood residents, faces the classic free rider problem. Goods that suffer from this free rider problem are known in economics as public goods.
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Optimal Provision of Public Goods pure public goods : Goods that are perfectly non-rival in consumption and are nonexcludable. non-rival in consumption : One individual’s consumption of a good does not affect another’s opportunity to consume the good. non-excludable : Individuals cannot deny each other the opportunity to consume a good. impure public goods : Goods that satisfy the two public good conditions (non-rival in consumption and non-excludable) to some extent, but not fully.
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Optimal Provision of Public Goods
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Optimal Provision of Public Goods
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Optimal Provision of Public Goods Optimal Provision of Private Goods Consumers demand different quantities of the good at the same market price. The optimality condition for the consumption of private goods is written as: In equilibrium, therefore, Equilibrium on the supply side requires:
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Optimal Provision of Public Goods Optimal Provision of Public Goods The social-efficiency-maximizing condition for the public good is: Social efficiency is maximized when the marginal cost is set equal to the sum of the MRSs, rather than being set equal to each individual’s MRS.
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The Free Rider Problem in Practice p WNYC has an estimated listening audience of 1 million people, but only 7.5% of their listeners support the station. In the United Kingdom, the BBC charges an annual licensing fee to anyone who owns and operates a TV. . A 2000 study of the file-sharing software Gnutella showed that 70% of users
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This note was uploaded on 04/13/2010 for the course ECON 330 taught by Professor Minetti during the Fall '08 term at Michigan State University.

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Chapter7 - Public Goods Chapter 7 7.1 Optimal Provision of...

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