Mankiw Chapter 11 New

Mankiw Chapter 11 New - Private Cost = Average Cost Social...

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Public Goods and Common Resources M icroeconomics P R I N C I P L E S   O F P R I N C I P L E S   O F N. Gregory Mankiw N. Gregory Mankiw Chapter 11
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Excludability and Rivalry Excludability is the property of a good whereby a person can be prevented from using it. Rivalry is the property of a good whereby one person’s use diminishes other people’s use.
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Public Goods and Common Resources Public goods are goods that are neither excludable nor rival in consumption. Common resources are goods that are rival in consumption but not excludable.
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Two Questions What is the efficient level of the public good? How can we provide the efficient level of a public good?
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Two Questions
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10 25 4 7 11 3 6 9 Private value A Private value B $ Public good Social cost = Private cost Social value
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Two Questions
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A free rider is a person who receives the benefit of a good but avoids paying for it. Free Rider
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Number of Cars Total Cost
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Unformatted text preview: Private Cost = Average Cost Social Cost 1 5 5 5 2 10 5 5 3 15 5 5 4 24 6 9 5 35 7 11 6 54 9 19 Social cost = New private cost + (Change in private cost x old number of cars) Number of Cars New Private Cost Change in Private Cost x Old Number of Cars Social Cost 2 5 0 x 1 = 0 5 3 5 0 x 2 = 0 5 4 6 1 x 3 = 3 9 5 7 1 x 4 = 4 11 6 9 2 x 5 = 10 19 Social cost Private cost Cars $ C 1 D R C 3 C 2 A B D M C 4 Chapter 11 Public Goods and Common Resources Excludability and rivalness Public goods Neither rival nor excludable Example: national defense Efficient quantity of a public good Public goods, markets, and the free rider problem Chapter 11 Public Goods and Common Resources Common resources Rival but not excludable Example: congested road without tolls Total cost, private cost, and social cost Tolls as a solution to road congestion...
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Mankiw Chapter 11 New - Private Cost = Average Cost Social...

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