Chapter 20 Econ

Chapter 20 Econ - Chapter 20 Econ, Public Goods and Common...

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Chapter 20 Econ, Public Goods and Common Resources Private Goods- and Others Characteristics of Goods -They are excludable: suppliers of the good can prevent people who don’t pay from consuming it -They are rival in consumption: the same unit of the good can’t be consumed b more than one person at the same time -a good that is both excludable and rival in consumption is a private good -wheat is a private good: it is excludable; the farmer can sell a bushel to one consumer without having to provide wheat to everyone in the country -it is rival in consumption; if I eat bread baked with a farmer’s wheat, that bread can no longer be eaten by someone else -when a good is nonexcludable, the supplier can’t prevent consumption by people who don’t pay for it -fire protection is an example; a fire department that puts out fires before they spread protects the whole city, not just people who have made contributions to the Firemen’s Benevolent Association -a good is nonrival in consumption if more than one person can consume the same unit of the good at the same time-watching a show -four types of goods -private goods: which are excludable and rival in consumption, like wheat -public goods: which are nonexcludable but rival in consumption, like a public sewer system -common resources: which are nonexcludable but rival in consumption, like clean water in a river -artificially scarce goods: which are excludable but nonrival in consumption, like pay-per view movies on cable TV Why markets can supply only private goods efficiently -a market economy is an amazing system for delivering goods and services, but it can’t supply goods and services efficiently unless they are private goods- excludable and rival in consumption -goods that are nonexcludable suffer from the free-rider problem: individuals have no incentive to pay for their own consumption and instead will take a “free ride” on anyone who does pay An example: when students are required to do a group project, there is a tendency of some members to shirk, relying on others in the group to get the work done, the shirkers free ride on someone else’s effort -even though consumers would benefit from increased production of the good, no one individual is willing to pay for more and so no producer is willing to supply it -nonexcludable goods suffer from inefficiently low production in a market economy -as long as a good is excludable, it is possible to earn a profit by making the good available only to those who pay -in a market economy goods that are nonrival in consumption suffer from inefficiently low consumption -private goods are the only goods that can be efficiently produced and consumed in a competitive market QUICK REVIEW -goods can be classified according to two attributes: whether they are excludable and whether they are rival in consumption -goods that are both excludable and rival in consumption are private goods. Private goods can be efficiently produced and consumed in a competitive market
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Chapter 20 Econ - Chapter 20 Econ, Public Goods and Common...

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