Chapter17 - Economics ch 17 Public Goods and Common...

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Economics ch 17 – Public Goods and Common Resources A good is excludable if it possible to prevent someone from enjoying its benefits. (e.g a concert people must pay to receive the benefit from this good, supply is limited as well) A good is nonexcludable if it is impossible (or extremely costly) to prevent anyone from benefiting from it (e.g police forces, fish in the sea) A good is rival if one person’s use of it decreases the quantity available for someone else. Goods such as fish are rival A good is nonrival is one person’s use has no effect on someone else’s. Services such as policing are nonrival. A private good is both rival and excludable (e.g can of coke) A public good is both nonrival and nonexcludable (e.g National defense is the best example of a public good) Common Resources are rival and nonexcludable. A unit of a common resource can only be used one but nobody is restricted from using what is available. When a good can be produced at zero marginal cost it is nonrival. If this good is excludable, it is produced by a natural monopoly. Public Goods – See graphs page 395 Free rider enjoys the benefits of a good or service without paying for it. Since it public, nobody can be excluded from its benefits, so nobody has an incentive to pay for the service or good. The free rider problem is that the market would provide an inefficiently small quantity of a public good. MSB > MSC, and a DWL occurs. Since everyone receives the same quantity, on a MSB graph, the MSB curve is the sum of the marginal benefits of all individuals at each quantity (vertical sum of the marginal benefit curves) In contrast, to obtain the marginal social benefit of a private good, we sum the quantities demanded at each price (Individual marginal benefit curves horizontally. Efficient Quantity of a Public Good To find efficient quantity, use same principles previously learned and find where MSB = MSC (equilibrium). When this occurs resources cannot be used more efficiently.
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