Public Goods and Common Resources

BlakePaul5th hr

Characteristics of goods• Excludability- The property of a good whereby a person

can be prevented from using it.• Excludable good include wireless internet and access to a

movie• Not excludable goods include the radio and a public beach

• Rivalry-The property of a good whereby one persons use diminishes other peoples use.

• Rival goods include apples and water• Goods that are not rival include songs and tv shows

Four Categories of Goods

• Private Goods- excludable and rivalEx. Food• Public Goods- neither excludable nor rivalEx. fireworks• Common Resources-rival, but not excludableEx. Fish in the ocean• Natural Monopoly-excludable, but not rivalEx. Cable TV

Public Goods

• Public Goods are difficult to provide because of the free rider problem

• Free Rider: Someone who gets the benefit from an object without paying for it

• Examples: Fireworks, Snow Removal, National Defense, Research.

Is a lighthouse a public Good; the lighthouse debate.Public Goods cont.

If a light house benefits many ship captains ,like myself, it is a public good. If it benefits a single port owner, it is more like a private good.

Problems and Solutions with Public Goods

• Problem: Free Riders; companies cannot prevent people from using it

• Solution: Companies don’t provide the product or they will be subsidized to provide it.

Cost Benefit Analysis

• Cost Benefit Analysis-A study that compares the costs and benefits to a society providing a public good.

• When government decides whether to provide public good they use this strategy. Ex: roads

• Public Goods are related to positive externalities. People ignore external benefits when deciding whether to provide a good for themselves.

• Measuring the value of an object is usually very difficult

Cost Benefit Example

• A streetlight may be valued at $1,000 by each of the 10 house owners in a neighborhood. If the cost is $5,000, no individual will buy a streetlight because no one can sell the light to their neighbors for $1000 each: they can enjoy the light whether they pay or not.

• If the benefit is more than the cost of providing then government should provide the good and tax people who benefit

Common Resources

• Examples: Clean air, water, wildlife.• When one person uses a common resources

he diminishes other peoples enjoy of it, therefore, common resources tend to be used excessively.

• Free rider problem still exists• Companies are given little incentive to provide

the resource

Pieming shoots an

alluring look towards

his favorite microeconomic topic,

Common Resources

Solutions for Common Resources

• Regulate use of the resource

• Impose a corrective tax to internalize the externality (pigovian tax)– example: hunting & fishing licenses, entrance fees for

congested national parks• Auction off permits allowing use of the resource – example: spectrum auctions by the

Tragedy of the Commons

• A parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.

James hates deforestation

Other Notes

• Public goods and common resources create positive and negative externalities.

• Subsidies are used to internalize the externality.

WOW this great power point totally caught me by surprise