Lecture 29 april 15th exam 3

Lecture 29 april 15th exam 3 - Announcements HW due FRIDAY...

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Unformatted text preview: Announcements HW due FRIDAY (not Thursday) (ch 14) and Monday (ch 16) Well finish chs. 17 and 18 (plus talk about taxes) before the midterm. Monday will be an in-class experiment (plus some lecturing). 1 of 35 Chapter 16 Public Goods and Public Choice 2 of 35 3 of 22 THE SOURCES OF MARKET FAILURE market failure Occurs when resources are misallocated, or allocated inefficiently. The result is waste or lost value. There are four important sources of market failure: (1) imperfect market structure, or noncompetitive behavior, (2) the existence of public goods, (3) the presence of external costs and benefits, and (4) imperfect information. 4 of 35 PUBLIC (SOCIAL) GOODS public goods (social or collective goods) Goods that are nonrival in consumption and/or their benefits are nonexcludable (or nonexclusive). In an unregulated market economy with no government to see that they are produced, public goods would at best be produced in insufficient quantity and at worst not produced at all. When we talked about the requirements for a market economy, we said that there must be rules concerning ownership of property. Public goods violate those rules. Specifically, it is impossible to prevent people from using such goods. 5 of 35 PUBLIC (SOCIAL) GOODS nonrival in consumption: One persons enjoyment of the benefits of a public good does not interfere with anothers consumption of it. Example: National Defense THE CHARACTERISTICS OF PUBLIC GOODS Nonexclusive : Once a good is produced, no one can be excluded from enjoying its benefits. Example: Public art, national defense Private, Public Goods, and in Between 1. Private goods Rival in consumption Exclusive Provided by private sector 2. Public goods Nonrival in consumption Nonexclusive Provided by government 6 Private, Public Goods, and in Between 1. Natural monopoly (Im not a big fan of this term but its what the book uses aka quasi-private goods) Nonrival but exclusive With congestion: private goods Provided by private sector or government 2. Open-access good Rival but nonexclusive Regulated by government 7 Different types of goods 8 Public Goods Because of these characteristics there are problems with the provision of public goods. Lets consider an example: Ernie the Entrepreneur decides to clean up and beautify the public parks in Faketown. We assume that market research shows that the residents of Faketown want nicer parks and they are willing to pay for it. BUT, not everyone is willing to pay the same amount....
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This note was uploaded on 08/15/2011 for the course ECON 2005 taught by Professor Zirkle during the Spring '07 term at Virginia Tech.

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Lecture 29 april 15th exam 3 - Announcements HW due FRIDAY...

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