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Chapter 10 - free-rider problem o Free rider a person who...

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Chapter 10 The Different Kinds of Goods o Private Goods: excludable, rival in consumption. Ex. Food o Public Goods: not excludable, not rival. Ex. National defense o Common Resources: rival but not excludable Ex. Fish in the ocean o Natural monopolies: excludable but not rival Ex. Cable TVu Active Learning 1: What are roads? o Rival in consumption? Only if congested o Excludable? Only in a toll road o Four possiblities Uncongested non-toll road: public good Uncongested toll road: natural monopoly The Different Kinds of Goods o This chapter focuses on public goods and common resources. o For both, externalities arise because something of value has no price attached to it. Public goods o Difficult for private markets to brovide because of the
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Unformatted text preview: free-rider problem o Free rider: a person who receives the benefit of a good but avoids paying for it. If good is not excludable, people have incentive to be free riders, because firms cannot prevent non-payers from consuming the good o Result: the good is not produced, even if buyers collectively value the good higher than the cost of providing it. o If the benefit of a public good exceeds the cost of providing it, govt should provide the good and pay for it with a tax on people who benefit. o Problem: measuring the benefit is usually difficult. o Cost-benefit analysis: a study that compares the costs and benefits of providing a public good ⇒...
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