Chap_11 - Introduction We consume many goods without...

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PUBLIC GOODS AND COMMON RESOURCES 1 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. Governments can sometimes improve market outcomes for these kinds of goods.
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PUBLIC GOODS AND COMMON RESOURCES 2 Important Characteristics of Goods A good is excludable if a person can be prevented from using it. Excludable : fish tacos, 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 : fish tacos Not rival : An MP3 file of Kanye West’s latest single
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PUBLIC GOODS AND COMMON RESOURCES 3 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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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   A C T I V E  L E A R N I N G   1 1         Categorizing roads Categorizing roads 4
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Rival in consumption? Only if congested. Excludable? Only if a toll road. Four possibilities: Uncongested non-toll road: public good Uncongested toll road: natural monopoly Congested non-toll road: common resource Congested toll road: private good A C T I V E  L E A R N I N G   A C T I V E  L E A R N I N G   1 1         Answers Answers 5
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PUBLIC GOODS AND COMMON RESOURCES 6 The Different Kinds of Goods This chapter focuses on public goods and common resources.
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Chap_11 - Introduction We consume many goods without...

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