Public Goods Private Goods (basics) - PowerPoint Presentation

1. Public Goods

2. Private Goods (basics)A good is excludable if the supplier of that good can prevent people who do not pay from consuming it. A good is rival in consumption if the same unit cannot be consumed by more than one person at one time. A private good is both excludable and rival in consumption.

3. Public Goods (basics)A good is nonexcludable if a supplier is unable to prevent its consumption by people who do not pay for it. A good is nonrival in consumption if more than one person can consume the same unit of the good at the same time. A public good is both nonexcludable and nonrival in consumption.

4. Public goods

5. Markets Only Supply Private Goods EfficientlyNonexcludable goods suffer from the free-rider problem: individuals have no incentive to pay for their own consumption and instead will “free ride” on anyone who does pay. When the benefits from a group project are nonexcludable, there is a temptation to free-ride on the efforts of others.

6. Characteristics of GoodsThis figure shows the four possible types of goods:PrivateArtificially scarceCommon resourcesPublic

7. Common GoodsCommon goods are nonexcludable but do have a rival in consumption

8. The Tragedy of the commons When people act rationally based on their self interest but behave contrary to what’s best for society.This leads to overuses of common resources which leads to market failure

9. Efficient Use & Maintenance of Common ResourcesThree ways to get users of common resources to internalize the costs they create for others: 1) Tax or regulate usage2) Create tradable licenses for the right to use the resource3) Make the resource excludable and assign property rights to individuals

10. Artificially Scarce GoodsArtificially scarce goods are excludable but nonrival in consumption.

11. Do you think ALL education should be a private service or all public?On a separate sheet of paper, write an economic report that answers this question.Things to considerImpact on quantity, priceImpact on school environmentImpact on the communityWill a shortage and/or surplus occur?etc

12. Summary and ReviewIts supplier can exclude people who don’t pay for it from consuming it. 1) What does it mean for a good to be excludable?One unit cannot be consumed by more than one person at once. 2) What does it mean for a good to be rival in consumption?Private goods.3) What types of goods are both excludable and rival in consumption?

13. Summary and Review5) What type of good is nonexcludable but rival in consumption?A public good.4) What type of good is both nonexcludable and nonrival in consumption? A common resource good.6) What type of good is nonexcludable but rival in consumption?A common resource good.

14. Summary and Review7) Define the free-rider problem, and name the kind of goods it affects?When people consume nonexcludable goods without paying for them, they “free-ride” on those who do pay for them. 8) How much of a public good should be provided?Public goods should be produced until the marginal social cost is equal to the marginal social benefit.

15. Summary and Review9) What is overuse of a common resource?Depletion that occurs when individuals ignore that their usage reduces the resource available to others.10) Name three ways to reduce overuse of common resources.1) Tax or regulate usage2) Create tradable licenses for the right to use the resource3) Make the resource excludable and assign property rights to individuals

16. Summary and Review11) What type of goods are excludable but nonrival in consumption?Artificially scarce goods.12) Because the marginal cost of another unit of an artificially scarce good is zero, the amount of the good consumed is usually inefficiently _____. low