Announcements• New problem set due: Now!• CAPE evaluation now online– We’ll have time at end of class today in case you havelaptop / smart phone.– Same thing Monday: I’ll email you this weekend toremind you to bring laptop / smart phone.
Announcements• Next week is last week of classes.– Wed and Fri will be final review.• Early next week, practice final questions will beposted.• If you can’t make my office hours but need to talk withme: Please feel free to email for an appointment!
Last Time• Finished talking about health care.• Provision of “safety” supplied by firms– Conditional on (MB to workers) > (MC to firm).
Learning Goals for Today• Contrast the characteristics ofprivate, commons, collective, and publicgoods.• Collect intuition for how inefficiencies arise.
Definitions and ExamplesNonrival Goods: Consumption by one person does not diminish availability to others.Nonexcludable Goods: It is difficult to exclude nonpayers from consuming.Rival NonrivalNonexcludableExcludable
Definitions and ExamplesNonrival Goods: Consumption by one person does not diminish availability to others.Nonexcludable Goods: It is difficult to exclude nonpayers from consuming them.Rival NonrivalNonexcludableExcludablePublic GoodsCollectiveGoodsCommons GoodsPrivate Goods
Which of the following goods is most likely tobe subject to the tragedy of the commons?A. Private GoodsB. Commons GoodsC. Collective GoodsD. Public GoodsE. I don’t remember what the TOTC is.Rival NonrivalNonexcludableExcludable
Tragedy of the Commons Revisited• We saw before that the TOTC could be solved bydefining property rights• For example, we solved problem of how muchpublic land would sell for in an auction.• For which commons goods will property rights“solve” or “not solve” the TOTC?Probablywill solveProbablywon’t solve
Free Riders• Consumers of a good who do not pay• Not “cheating” per se, they simply have noincentive.
Free Riders• Like commons goods, public goods arenonexcludable, but unlike them, they’re alsononrival.• Both cause free riders.• However, public goods don’t induce TOTC.
Public Goods: Which to Provide?• Most are provided by the government– Why? Everyone can benefit from them, but free riderproblem makes profit unlikely.• However, the government should not provide allpublic goods.– Still need to follow benefits > costs principle.Probablyshould provideProbablyshouldn’t provide
Public Goods: What Does MarketDemand Look Like?• Recall: how do we generate a marketdemand line for a private good?• What is the key difference for public goods?