Ch11 Oct2009

Ch11 Oct2009 - Ch11 PUBLIC GOODS 1 Objectives: Economics...

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1 Ch11 PUBLIC GOODS
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2 Objectives: Economics for Business Studies I 1. Basics of Microeconomics Demand, Supply and Markets 2. Principles and Theories of Microeconomics Externalities & The Public Sector
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3 “The best things in life are free. . .” Free goods provide a special challenge for economic analysis. When goods are available free of charge , the market forces that normally allocate resources in our economy are absent. When a good does not have a price attached to it, private markets cannot ensure that the good is produced and consumed in the proper amounts.
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4 The Different Kinds of Goods When classifying types of goods in the economy, two characteristics should be examined. Definition of excludability : the property of a good whereby a person can be prevented from using it . Definition of rivalry : the property of a good whereby one person’s use diminishes other people’s use .
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5 The Different Kinds of Goods Using these two characteristics, goods can be divided into four categories. Definition of private goods : goods that are both excludable and rival . Definition of public goods : goods that are neither excludable nor rival. Definition of common resources : goods that are rival but not excludable. If a good is excludable but not rival , it is an example of a natural monopoly .
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6 The Four Types of Goods Rival? Yes Yes I ce-Cream Cones • Bottled Water • Congested Toll Tunnels Optical Fiber Network • Uncongested Toll Tunnels No Private Goods Natural Monopolies No Excludable? • Fish in the Ocean • Public Area • Congested Nontoll Tunnels • Optical Light • Typhoon Signals Uncongested Nontoll Tunnels Common Resources Public Goods • Charged TV
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7 The Four Types of Market Structure • Town Gas • Electricity Monopoly (Chapter 15) • Movies • Books Monopolistic Competition (Chapter 17) Land Developers Oil Industry Oligopoly (Chapter 16) Number of Firms? Perfect • Rice • Milk Competition (Chapter 14) Type of Products?
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Ch11 Oct2009 - Ch11 PUBLIC GOODS 1 Objectives: Economics...

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