Section 08 PG - Section 8 Public Goods and Externalities...

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1 Section 8 Public Goods and Externalities Public Goods - I. Public Goods A. Excludability Excludable Non-excludable - 1. Degrees of excludability B. Rival Rival - Non-Rival - 1. Degrees of rivalness C. Examples of public goods Good examples : Bad examples (do not satisfy two conditions):
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2 D. Private goods demand curve vs. non-rival goods An office with 3 people: Cups of Coffee (A rival good) MB (MWTP) in $ Cups Jason James Ron 1 $1.50 $1.00 $.55 2 $1.25 $1.00 $.45 3 $1.00 $1.00 $.35 4 $.75 $.45 $.20 If the marginal cost for coffee is $.50 what is the optimal amount for the office to order? What is the consumer surplus? If you sell the coffee would this be the private market solution?
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3 Pictures (A non-rival good) MB (MWTP) in $ Pictures Jason James Ron 1 $5 $2 $1 2 $4 $1 $0.50 3 $2.50 $0.50 $0.25 4 3 $0 - $2 If a picture costs $3 what is the optimal amount for the office to order? What is the consumer surplus? What did we do differently? What would be the private market solution?
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4 Draw the demand curves How excludable is a picture?
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5 Graphs of SMB and SMC: Private goods: Public Goods (non-rival):
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6 E. Market failures and public goods 1. Free-rider problem Examples : a. A workers’ revolution b. A Dam that won’t be built c. Free bikes
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7 F. Some common public goods 1. National defense a) Excludable and rivalness b) How much? Who benefits? 2. Interstate Highways a) Excludable and rivalness b) Vs. railroads G. Public goods & David Friedman “The problem with (free markets and) public goods is not that one person pays for what someone else gets but that nobody pays and nobody gets, even though the good is worth more than it would cost to produce.”
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Section 08 PG - Section 8 Public Goods and Externalities...

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