060313

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060313

  1. 1. Commons , Collective, andPublic Goods: Part IIJune 3, 2013
  2. 2. Announcements• Last day of new material!• Practice final and notes from today will be on sitetonight.• Wed and Fri classes will be all final review.• Jake will also run a final review session (locationtime / TBA).
  3. 3. Last Time• Started talking about goods: commons,collective, public, and private.• Tragedy of the commons
  4. 4. Learning Goals for Today• Differentiate public and private goods indetail.• Explain the problems the government runsinto in funding public goods.
  5. 5. 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 GoodsCollectiveCommons GoodsPrivate Goods
  6. 6. 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 GoodsCollectiveCommons GoodsPrivate GoodsLet’s focus now on Public vsPrivate goods.
  7. 7. Public GoodsvsPrivate Goods:Excludability• Since private goods are nonexcludable, it’shard to profit off of them.• Usually, provided by the government.• What are example of nonexcludable andnonrival goods that are privately provided?
  8. 8. Which of the following is an example of apublic good that is privately provided?A. Community GardensB. MercenariesC. CommercialsD. Internet Service
  9. 9. Public GoodsvsPrivate Goods:Rivalness• Recall: how do we generate a market demand line fora private good?• Private goods RIVAL: individual consumers mustpurchase individual goods (Add Q).• What is the key difference for public goods?• Public goods are NONRIVAL: individual consumers canshare the cost of goods (Add P).
  10. 10. Let PD(1)=24-(2/3)Q and PD(2)=18-(3/4)Q.Compute PD(1+2). What are U and V?A. U=18, V=8B. U=24, V=8C. U=24, V=24D. U=42, V=8PQUV
  11. 11. Collective Goods: The Internet• Internet use is certainly excludable.• Is it nonrival?– If definitely yes, internet is collective.– If not quite, internet is between private andcollective.Rival NonrivalNonexcludableExcludablePublic GoodsCollectiveCommons GoodsPrivate Goods
  12. 12. Collective Goods: The Internet• Let’s talk about Verizon.• What is the effect on this firm’s profits ofproviding increased / decreased bandwidth?– ScarcityRival NonrivalNonexcludableExcludablePublic GoodsCollectiveCommons GoodsPrivate Goods
  13. 13. Rank the following in terms of highest probableprofits to lowest probable profitsA. collective, private, commons, publicB. private, collective, commons, publicC. private, collective, public, commonsD. commons, public, collective, private
  14. 14. Crowding Out and Tax Disincentives• Since many public goods are funded by thegovernment, the government needs to raisemoney.– Tax– Issue bonds

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