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Chapter 11: Problems and Applications #1-4
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1. Public Goods and Common Resources involve Externalities • A. Externalities associated with public goods positive or negative? • Positive
Examples:
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1a. Is free market Q of public goods > or < efficient Q
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1b. Are externalities with common resources positive or negative • Negative……
Private value exceeds social value
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1b. Examples
• Fish in ocean, environment, congested non-toll roads, congested parks
• Is Free market use of common resources > or < efficient use? • Free market use > efficient use
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2. Categorize • Police protection • Natural monopoly – can be excludable and non rival (if not busy) • Can be private – excludable and and rival (if busy) • Can be common good – rival (if busy) but not excludable • Can be public good – non rival, non excludable
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• Snow plowing (city streets) • Could be public good (non rival, non excludable) • Could be common resource (non excludable, but rival – if
busy and cant get to all streets)
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• Education (public schools vs. private school) • Public education• If live in Solon = Public good • If live outside of Solon but wanted to go to Solon = ….• Natural monopoly (excludable , non rival)
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•Rural Roads •Public goods •Non rival, non excludable •Assume rural = not crowded
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•City streets• If congested = •Common resources (non excludable, but rival) • If not congested = •Public good
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2b- why do you think the government provides items that are not public goods? •May provide positive externalities • Ex: education
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3. Charlie watches public TV but no donations•A. he is called • Free Rider •B. how can govt. solve problem • First – what is the problem ? …..•Private market cant provide as much as is socially
desirable b/c of high costs…. • If govt. sees benefit is greater than cost, can provide
subsidies to the station
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3c. Can private market solve this problem? •Add commercials •Cable TV•…but change the definition…no longer a public good
….= it is now a….….? •Natural monopoly…..excludable but non rival
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4. Firms will not undertake the efficient amount of basic scientific research• A. Explain why…..classify basic research
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4b. What policy has US adopted?
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4c