Public goods & common resources

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chapter 11 of the book PRINCIPLES OF ECONOMICS
including key poings

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Public goods & common resources

  1. 1. Public Goods & Common Resources CHAPTER 11 PRESENTATION
  2. 2. Presenters: HARIS AWAN FARHAN ALI RANA MUNEEB AHMED MOHSIN KHAWAJA SP13-BBA-028 SP13-BBA-055 FA13-BBA-185 SP13-BBA-037
  3. 3. THE BEST THINGS IN LIFE ARE FREE… Goods without prices provide a special challenge for the economic analysis .
  4. 4. Price are the signals… • That guide decisions of buyers and sellers which leads to an efficient allocation of resources. Otherwise when the goods are available for free the market forces that normally allocate the resources become Absent.
  5. 5. Kinds of Goods. As there are various goods in economy, its better to group them according to their characteristics, 1) Excludable 2)Rival in consumption Excludable: if the people can be prevented from using it. Rival in consumption: if one person's use of the good diminishes other people’s use of it.
  6. 6. Further Division. • Private Goods: • Goods that are both excludable and rival in consumption. • Public Goods: • Goods that are both executable and rival in consumption. Example: 1. National defense 2. Fighting poverty 3. Basic Research • Common resources: • Goods that are rival but not excludable. • Club goods: • Goods that are excludable but not rival.
  7. 7. Explanation….! • If a person provides a public good as a tornado serein, other people would better-off because of free service (Positive externality) • When a person uses a common resource such as the fish ocean , other people are worst-off because of fewer fishes to catch and that a noncompensated loss. (Negative externality) Because of these external effects, private decisions about the consumption and production can be a loss to allocation of resources, and the Govt. intervention can be a lead to economic well-being.
  8. 8. Cont.… • In the case of a public good as Fireworks. This good is not excludable because it is impossible to prevent someone form seeing it and its not rival either because one person’s enjoyment of fireworks does not reduce anyone’s enjoyment.
  9. 9. Free Riders & Cost-Benefit Analysis • Free riders: A person who receives benefit from good but avoid paying for it. (LIGHT HOUSES are what kind of goods??) • Cost-benefit analysis: A study that compares the cost and benefit to society of providing a public good.
  10. 10. Cost-benefit analysis explained. • Till now we have studied that Govt. provides public goods but the Govt. must decide what kinds of public goods to be provided and in what quantities. Example: Govt. plans to built a highway, the total benefit should be equal to the benefits gained by its use and to make these decisions Govt. hire a team of economists to conduct a study called COST BENEFIT ANALYSIS
  11. 11. Common resources & Tragedy of Commons Common resources are like public goods non excludable but they are Rival in consumption as the use of a person effects the benefits of others so the common resources give rise to another problem, which can be avoided if the policy-makers get concerned about how much to use it. • SOME COMMON RESOURCES 1. Clean water and air 2. Congested or single roads 3. Wild life or seafood
  12. 12. Summarizing the chapter • There are two kind of goods EXCLUDABLES & RIVAL IN CONSUMPTION • Further division • • • • Club goods (excludable but not rival) Private goods (free for none) Public goods (free for all) Common resources (rival but nor excludable) • Free riders • People enjoys the benefits but avoid to pay for. • Cost benefit analysis • The study of comparison of cost and benefit to a society for a provided public good.

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