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Unformatted text preview: mportant modifications with respect to the way we conduct our economic analysis and with respect to the final welfare results. PUBLIC VS PRIVATE So what is the difference between private and public goods? Pure public goods (or just public goods for short) and private goods are two ends of the entire spectrum of goods. [Regular private goods] PRIVATE GOODS Private goods are characterized by private ownership and consumption which basically exclude the joint ownership and consumption of the good (i.e. exludability, rivalrous). [Pure public goods] PUBLIC GOODS Public goods are characterized by public ownership and consumption which do not exclude the joint ownership and consumption of the good (i.e. non-exludability, nonrivalrous). Public goods can be owned or consumed jointly and equally by all in the economy. (i.e. national security, air quality, community fireworks displays, etc.). When private goods are owned or consumed by their owners, everyone else is barred from owning or consuming those goods. Private goods are the only type of goods we have studied thus far. Of course, there are goods that are categorized somewhere in the middle of the spectrum. These might be referred to as "local public goods" and these are characterized by some combination of features that make them "sort of public, sort of private". [Regular private goods] Local Public Goods [Pure public goods] Although these intermediate goods are not publicly owned (i.e. it costs money to gain entitlement, entrance or membership in order to consume them), they still 236 allow for joint consumption (i.e. every fee paying member can equally and jointly consume the goods). Some examples of these local public goods might include private club membership, local environmental quality, tickets to a concert stadium, etc. There are three basic economic issues involving public goods: [1] Efficient allocation of public goods We already know that in an economy with private goods only, Pareto Optimal conditions such as, MRSA = MRSB allow us to determine efficient allocations of goods and factors. Now, the issue is: Do these Pareto Optimal c...
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