2. Announcements
• Last day of new material!
• Practice final and notes from today will be on site
tonight.
• Wed and Fri classes will be all final review.
• Jake will also run a final review session (location
time / TBA).
3. Last Time
• Started talking about goods: commons,
collective, public, and private.
• Tragedy of the commons
4. Learning Goals for Today
• Differentiate public and private goods in
detail.
• Explain the problems the government runs
into in funding public goods.
5. Definitions and Examples
Nonrival Goods: Consumption by one person does not diminish availability to others.
Nonexcludable Goods: It is difficult to exclude nonpayers from consuming them.
Rival Nonrival
Nonexcludable
Excludable
Public Goods
Collective
Commons Goods
Private Goods
6. Definitions and Examples
Nonrival Goods: Consumption by one person does not diminish availability to others.
Nonexcludable Goods: It is difficult to exclude nonpayers from consuming them.
Rival Nonrival
Nonexcludable
Excludable
Public Goods
Collective
Commons Goods
Private Goods
Let’s focus now on Public vsPrivate goods.
7. Public GoodsvsPrivate Goods:
Excludability
• Since private goods are nonexcludable, it’s
hard to profit off of them.
• Usually, provided by the government.
• What are example of nonexcludable and
nonrival goods that are privately provided?
8. Which of the following is an example of a
public good that is privately provided?
A. Community Gardens
B. Mercenaries
C. Commercials
D. Internet Service
9. Public GoodsvsPrivate Goods:
Rivalness
• Recall: how do we generate a market demand line for
a private good?
• Private goods RIVAL: individual consumers must
purchase individual goods (Add Q).
• What is the key difference for public goods?
• Public goods are NONRIVAL: individual consumers can
share the cost of goods (Add P).
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=8
B. U=24, V=8
C. U=24, V=24
D. U=42, V=8
P
Q
U
V
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 and
collective.
Rival Nonrival
Nonexcludable
Excludable
Public Goods
Collective
Commons Goods
Private Goods
12. Collective Goods: The Internet
• Let’s talk about Verizon.
• What is the effect on this firm’s profits of
providing increased / decreased bandwidth?
– Scarcity
Rival Nonrival
Nonexcludable
Excludable
Public Goods
Collective
Commons Goods
Private Goods
13. Rank the following in terms of highest probable
profits to lowest probable profits
A. collective, private, commons, public
B. private, collective, commons, public
C. private, collective, public, commons
D. commons, public, collective, private
14. Crowding Out and Tax Disincentives
• Since many public goods are funded by the
government, the government needs to raise
money.
– Tax
– Issue bonds
