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  • 1. Public Goods and Common Resources
    Blake
    Paul
    5th hr
  • 2. 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
  • 3. Four Categories of Goods
    Private Goods- excludable and rival
    Ex. Food
    Public Goods- neither excludable nor rival
    Ex. fireworks
    Common Resources-rival, but not excludable
    Ex. Fish in the ocean
    Natural Monopoly-excludable, but not rival
    Ex. Cable TV
  • 4. 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.
  • 5. 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.
  • 6. 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.
  • 7. 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
  • 8. 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
  • 9. 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
  • 10. 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
  • 11. 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
  • 12. 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