Public Goods and Common Resources Blake Paul 5th 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 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
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