Microeconomics Chapter 11 Class Notes

Microeconomics Chapter 11 Class Notes - M icroeconomics -...

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Microeconomics - Chapter 11: Public Goods and Common Resources There are some goods and services for which people do not pay, and enjoy it for free. Some of them are provided by nature (forests, beaches, mountains etc) while some are provided by the government (Freeways, Parks, and etc). In these instances forces that allocate the market resources 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. In such cases, government policy can potentially remedy the market failure and raise economic well-being. Two kinds of Goods in the market: Excludable: when people can be prevented using that good. And Rival in Consumption : that is that one person’s use of good reduces Excludable: Rival in Consumption Both Neither/Nor When a good is excludable but not rival in consumption, it is an example of a good produced by a natural monopoly . For instance, consider fire protection in a small town. It is easy to exclude someone from using this good: Common Resource: are rival in consumption but not excludable. For example, fish in the ocean are rival in consumption: When one person catches fish, there are fewer fish for the next person to catch. Yet these fish are not an  Private   Goods  are  both   excludable   and  rival in consumption.  Consider an ice-cream  cone, for example. An  ice-cream   cone   is  excludable because it  is possible to prevent  someone from eating  an   ice-cream   cone– you just don't give it  to him. An ice-cream  cone   is   rival   in  consumption   because  if one person eats an  ice-cream   cone,  another   person  cannot   eat   the  same  cone.   Most   goods   in 
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Microeconomics Chapter 11 Class Notes - M icroeconomics -...

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