FS08EC2106_L11 - Chapter 11 Public Goods and Common...

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ECON 2106-C Prof. Byung-Cheol Kim 0 Chapter 11 Public Goods and Common Resources
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In this chapter, look for the answers to these questions: ± What are public goods? What are common resources? Give examples of each. ± Why do markets generally fail to provide the efficient amounts of these goods? ± How might the government improve market outcomes in the case of public goods or common resources? 1
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PUBLIC GOODS AND COMMON RESOURCES 2 Introduction ± We consume many goods without paying: parks, national defense, clean air & water. ± When goods have no prices, the market forces that normally allocate resources are absent. ± The private market may fail to provide the socially efficient quantity of such goods. ± One of the Ten Principles from Chapter 1: Governments can sometimes improve market outcomes.
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PUBLIC GOODS AND COMMON RESOURCES 3 Important Characteristics of Goods ± A good is excludable if a person can be prevented from using it. ± Excludable : wireless internet access ± Not excludable : FM radio signals, national defense ± A good is rival in consumption if one person’s use of it diminishes others’ use. ± Rival : cheese burger ± Not rival : An MP3 file of Kanye West’s latest single
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PUBLIC GOODS AND COMMON RESOURCES 4 The Different Kinds of Goods Private goods : excludable, rival in consumption Example: food Public goods : not excludable, not rival Example: national defense Common resources : rival but not excludable Example: fish in the ocean Natural monopolies : excludable but not rival Example: cable TV
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PUBLIC GOODS AND COMMON RESOURCES 5 Rival in consumption? Yes No Excludable? Yes Private goods Ice cream cones Clothing Natural monopolies Fire protection Cable TV No Common resources Fish in the ocean The environment Public goods Tornado system National defense
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± A road is which of the four kinds of goods? ± Hint : The answer depends on whether the road is congested or not, and whether it’s a toll road or not. Consider the different cases. A C T I V E L E A R N I N G 1 Categorizing roads 6
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± Rival in consumption? Only if congested. ± Excludable?
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This note was uploaded on 02/08/2011 for the course ECON 2106 taught by Professor Minjaesong during the Fall '06 term at Georgia Institute of Technology.

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FS08EC2106_L11 - Chapter 11 Public Goods and Common...

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