chapter 16 - Chapter 16 Nonrival if many people can enjoy a...

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Chapter 16 Nonrival - if many people can enjoy a good at the same time Rival - example: wearing a pair of socks, there is no way anyone else can wear the same pair at the same time Nonexcludability - (fireworks) it is hard to exclude people from enjoying the show, even if they do not pay *If private producers can’t exclude those who don’t pay, then private markets are certain to fail. When nonexcludable good are produced at all, it will be necessary for governments to do the producing. Free-rider problem - people who say they aren’t willing to pay (even when they really are willing to pay), because they believe that someone else will eventually foot the bill. As a result, it will be hard to determine the amount of public good that would be best for society. Public good - example: defense against nuclear attack. It is nonrival and nonexcludable. Pure private goods are completely rival and excludable. *The Federal government spends most of its money on transfer payments, interest and defense; but State and local governments tend to spend the most on education, which consumes more than 30% of the total. *If we add together all government spending in the US, the total is substantially more than $3 trillion per year. This works out to be more than 30% of GDP. Methods of government financing : Confiscation Inflation Bonds Taxes The tax systems goals : Raising revenue Economic efficiency. When a tax leads to changes in behavior it is a distortionary tax . Distortionary taxes tend to mess up the workings of the economy, which creates
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chapter 16 - Chapter 16 Nonrival if many people can enjoy a...

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