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101 lecture 11

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101 lecture 11

  1. 1. Microeconomics Lecture 11 ! Public Goods and Common Resources
  2. 2. Key Terms excludability rivalry in consumption private goods public goods common resources club goods free rider cost-benefit analysis Tragedy of the Commons
  3. 3. Four Types of Goods Private Goods Public Goods Common Resources Club Goods
  4. 4. Some goods do not have prices How much should we produce? ! Government policy
  5. 5. Private Goods Goods that are excludable and rival in consumption. ! Can exclude others If I consume, you cannot
  6. 6. Excludable Can people be prevented from using the good? ! Yes No
  7. 7. Rivalry in Consumption Can one person’s use of a good reduce others use? ! Can two people consume at the same time without reducing?
  8. 8. Exclude others ! When I consume it diminishes
  9. 9. Public Goods Goods that are neither excludable nor rival in consumption. ! Cannot exclude Everyone can consume without reducing amount
  10. 10. Free Rider a person who receives a benefit but does not pay for it
  11. 11. National Defense
  12. 12. Basic Research ! Everybody Benefits
  13. 13. Common Resources Goods that rival in consumption but are not excludable ! Cannot exclude others If I consume, you cannot
  14. 14. Common Resource ! Drink as fast as possible before it runs out
  15. 15. Private Good Each person has his own cup
  16. 16. Which method will incentivize people to not waste the resource? Share one cup Each person gets their own cup
  17. 17. Tragedy of the Commons If everyone owns it, no one owns it Privatize the commons
  18. 18. Property Rights Reduce contention ! Create wealth