class10_public+goods_

class10_public+goods_ - Econ 51, Winter 2011 Class #10...

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1 Econ 51, Winter 2011 Class #10 • Reminders: – Midterm on Tuesday in Bishop Auditorium in the GSB building. – Closed books/notes, but bring a calculator! – We’ll start at 9:00am (not 9:05). – See my coursework announcement for more detail. –TA review sections on Friday (regular time and location). –Special OH on Monday 8am-10 in Landau 239 (Fuhito). More TA OHs on weekends if we are granted rooms (waiting for confirmation. .. please be attentive to announcement in Coursework). – graded PS #2 available on Friday. – PS #3 due Friday: Solution available on Friday night on Coursework. – No PS this week; PS #4 will be posted next week. • Please take 5 minutes to do the mid-quarter evaluations (open until Sunday, 6th. For the link, see my Coursework announcement from Monday) • Today: Public Goods Wednesday, February 16, 2011
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2 Public Goods Wednesday, February 16, 2011
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3 Example Public goods People like to live in towns with many flowers. A town may decide to use tax-money for planting flowers. The flowers would become a public good: everyone could enjoy them without paying, and without decreasing other people’s consumption of it. Wednesday, February 16, 2011
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4 Definition Public goods Non-rival good - The marginal costs of providing the good to an additional consumer are zero. (Equivalently, consumption by one person does not reduce the utility of the consumption by others.) Non-exclusive good - Once the good is provided to some consumers, other people cannot be excluded from consuming it. Public goods are goods which are both non-rival and non- exclusive. Wednesday, February 16, 2011
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5 Examples Public goods Non-rival and non-exclusive (thus public) goods: national defense, law enforcement, public radio and television. Non-rival but exclusive: bridge, beach, software. Rival but non-exclusive: fishing in a large ocean, clean air. Most public goods are not “pure”: up to a certain number of users there are no additional costs, but not afterwards. Wednesday, February 16, 2011
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6 Efficient provision of public goods Public goods How much of the public good should we provide? In ordinary (private) goods, we can compare the marginal cost of producing one more unit of the good with the marginal benefit it provides to the marginal consumer who will consume it. With public goods, we need to compare the marginal costs of producing one more unit of the good with the sum of the marginal benefits it provides to all consumers. Wednesday, February 16, 2011
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7 Market failure Public goods For public goods, there is opportunity for free riding , that is, benefit from the the public good without paying for it. Once the good is provided to one agent, other agents find no reason to pay for it because they have access to it anyway. So
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This note was uploaded on 03/19/2011 for the course ECON 51 taught by Professor Tendall,m during the Winter '07 term at Stanford.

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class10_public+goods_ - Econ 51, Winter 2011 Class #10...

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