1 Chapter 4 Public Goods
2 Public Goods are goods for which exclusion is impossible . One example is National Defense: A military that defends one citizen from invasion does so for the entire public. Public Goods
3 Characteristics of Public Goods Nonexclusion : The inability of a seller to prevent people from consuming a good if they do not pay for it. Nonrivalry : The characteristic that if one person “consumes” a good, another person’s pleasure is not diminished, nor is another person prevented from consuming it.
4 Pure Public Goods and Pure Private Goods Pure Public Good : No ability to exclude and no rivalry for benefits. Pure Private Good : Clear ability to exclude and rivalry for benefits.
5 Marginal Costs for Provision of Public Goods The marginal cost of allowing another person to benefit from a pure public good is zero, while the marginal cost of providing a greater level of public good is positive .
6 Figure 4.1 Marginal Costs of Consuming and Producing a Pure Public Good-Figure A 0 Cost (Dollars) Number of Consumers 200 Marginal Cost of Allowing an Additional Person to Consume a Given Quantity of Pure Public Good 1
7 Figure 4.1 Marginal Costs of Consuming and Producing a Pure Public Good--Figure B Marginal Cost of Producing a Pure Public Good MC = AC 200 Units of a Pure Public Good per Year Cost (Dollars) 0
8 Example:Bread versus Heat Bread – Clearly a pure private good because there is the ability to exclude and there is rivalry to consume. Heat – Clearly a pure public good because there is no ability to exclude and there is no rivalry to consume.
9 Price Excludable Public Goods vs Congestible Public Goods Provision of Private Good and Public Goods: Markets and Government
10 Price Excludable Public Goods Excludability, but no rivalry Another type of good is a price- excludable public good : no rivalry but exclusion is easy.
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- Public Good, pure public good