Chap016 - Chapter 16 - Public Goods, Externalities, and...

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Unformatted text preview: Chapter 16 - Public Goods, Externalities, and Information Asymmetries CHAPTER SIXTEEN PUBLIC GOODS, EXTERNALITIES, AND INFORMATION ASYMMETRIES CHAPTER OVERVIEW Chapter 4 covered the economic functions of government, some facts about government expenditures and taxes, and the growth of the public sector. The present chapter extends and deepens our understanding of governments role in a market-oriented economy. In the process, the authors identify some of the problems the government faces in carrying out its economic functions. The chapter begins by examining the topic of market failure. Through marginal analysis, there is a fuller discussion of public goods and externalities than is found in Chapter 4. Various approaches for limiting negative externalities are also presented. The growing pollution problem, including global warming, is discussed. The end of the chapter addresses the problem of information failures in the private sector and possible government solutions to this problem. INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to: 1. Identify the characteristics of public goods and explain how they differ from private goods. 2. Describe graphically the collective demand curve for a particular public good and explain this curve. 3. Explain why the supply curve for public goods is upward sloping and explain how the optimal quantity of a public good is determined. 4. Identify the purpose of cost-benefit analysis and explain the major difficulty in applying this analysis. 5. Explain what is meant by externalities. 6. Describe graphically and verbally how an overallocation of resources results when negative externalities costs are present and how this can be corrected by government action. 7. Describe graphically and verbally how an underallocation of resources occurs when positive externalities are present and how this can be corrected by government action. 8. Explain the Coase theorem, its significance, and the three conditions necessary for it to work. 9. Describe three policies that would reduce negative externalities. 10. Use an example to explain a market for pollution rights and how this market would lead to a better allocation of resources. 11. Discuss the predicted effects of global warming and how cost-benefit could be used to determine international policies and goals 12. Give two examples of how inadequate information about sellers can create a market failure. 13. Explain the moral hazard and adverse selection problems faced by sellers. 14. Define and identify terms and concepts listed at the end of the chapter. 16-1 Chapter 16 - Public Goods, Externalities, and Information Asymmetries LECTURE NOTES I. Introduction A. Learning objectives In this chapter students will learn: 1. How public goods are distinguished from private goods....
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This note was uploaded on 07/27/2010 for the course ECON 0453 taught by Professor Dongwahu during the Spring '09 term at Shoreline.

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Chap016 - Chapter 16 - Public Goods, Externalities, and...

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