plugin-Chap18 - Krugman Krugman and Wells and Wells hapter...

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Unformatted text preview: Krugman Krugman and Wells and Wells hapter 18 hapter 18 Chapter 18 Chapter 18 Steven J. Haider EC201 Spring 2010 Overview Overview Sometimes markets lead to efficient outcomes hapters 3 10 3: develops and uses competitive model Chapters 3-7, 10-13: develops and uses competitive model ometimes markets do not lead to efficient outcomes Sometimes markets do not lead to efficient outcomes Models with market power (Chapters 14-16) Externalities (Chapter 17) Chapter 18: public goods and common resources Private goods are excludable and rival in consumption The competitive model leads to efficient outcomes for private oods but not other types of goods goods, but not other types of goods We can analyze many of these situations as being externalities EC201-14-p2 And just to be sure… And just to be sure… In chapters 3-7 we introduced the perfectly competitive model…skipping a lot of the details hap 10- 3: we went back and got the details howing the Chap 10 13: we went back and got the details showing the underlying assumptions of utility maximization (briefly) and profit maximization (in great detail) Chap 17: we introduced the idea of externalities—perfect competition assumes no externalities Chap 18: we introduce the idea of private good —perfect competition assumes goods are private goods EC201-18-p3 Some definitions Some definitions Characteristics of goods xcludable a good for which the supplier can prevent people Excludable : a good for which the supplier can prevent people who do not pay from consuming it Rival in consumption : a good for which the same unit cannot be consumed by more than one person at the same time These distinctions lead to 4 types of goods—and we’ve t pically assumed private goods so far yp y p g EC201-18-p4 Types of goods and externalities Types of goods and externalities Issues of excludability and rival in consumption can be thought of as examples of externalities If I consume a public good like a nicely landscaped house, my neighbors benefit in addition to me benefiting Nicely landscaped house is nonrival (my neighbors’ enjoyment does not diminish mine) and nonexcludable (my neighbors can freely look at it) My nicely landscaped house has a positive externality (benefits to thers) others) My private choice for landscaping would be less than is socially optimal I consume a common resource like fishing in the ocean other...
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This note was uploaded on 05/18/2010 for the course ECONOMIC Ec 201 taught by Professor Haider during the Spring '10 term at MSU - Iligan Inst of Tech.

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plugin-Chap18 - Krugman Krugman and Wells and Wells hapter...

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