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51-handout - 2/23/2010 Public Goods And Market Failure...

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2/23/2010 1 Public Goods And Market Failure AS Economics Will the market supply? • Businesses in the private sector may not provide public goods – leading to market provide public goods leading to market failure • It is important to distinguish between private and public goods • And to understand why the market may not offer some public goods offer some public goods! • In which case there is an argument for collective provision by the government
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2/23/2010 2 Characteristics of Private Goods • What are private goods? • Private goods are excludable – Consumers of private goods can be excluded from consuming the product if they are not willing or able to pay for it – For example - a ticket to the theatre or a sports event or a meal in a restaurant – If you don’t pay – you don’t consume and benefit from the good or service! Private Goods Private goods are rival One person's consumption reduces the amount – One person s consumption the amount left for others to consume – Scarce resources are used up in producing and supplying the good or service – There is an opportunity cost – The marginal cost of supply is positive – Therefore we can justify charging a price Private goods are rejectable – Private goods can be rejected
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2/23/2010 3 Private Goods Private goods and service are and service are rival and excludable The private sector can supply private can supply private goods because they can charge consumers and make a profit Digital “pay per view” – an excludable private good – a growing market! Movies Sporting events Internet News services Repeat TV Online libraries
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2/23/2010 4 Digital rights management • Digital Rights Management is a Management is a means of making a product excludable
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51-handout - 2/23/2010 Public Goods And Market Failure...

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