SlideShare a Scribd company logo
MBEC 6001
Pre-Economics
L5: Public Goods, Public Expenditures &
Common Resources
Introduction
• We consume many goods without paying:
parks, national defense, clean air & water.
• When goods have no prices, the market forces
that normally allocate resources are absent.
• The private market may fail to provide the
socially efficient quantity of such goods.
• In this case, governments can sometimes
improve market outcomes.
Types of Goods
Important Characteristics of
Goods
• A good is excludable if a person can be prevented
from using it.
 Excludable: Cinema tickets, airplane tickets
 Not excludable: Street lighting, national defense
• A good is rival in consumption if one person’s
use of it diminishes others’ use.
 Rival: Fuel, food
 Not rival: Museums, paintings
The Different Types of Goods
• Using these two characteristics, most goods can be
classified into four categories:
Rival in Consumption?
Yes No
Excludable?
Yes Private Goods
Clothing
Club Goods
Cable TV
No Common Resources
The environment
Public Goods
Clean air
The Different Types of Goods
Private
Goods
Jeans
Hamburgers
Contact lenses
Public
Goods
Fire works
Mosquito
protection
Traffic control
Club
Goods
Private parks
Wifi
Computer
software
Common
Goods
Public roads
Fish in the
Ocean
Public
schooling
Excludable &
Rival in
consumption
Non-excludable
& non-rival in
consumption
Excludable, but
non-rival in
consumption
Non-excludable,
but rival in
consumption
Public Goods and
Common Resources
Public Goods
• Public goods are difficult for private markets to
provide because of the free-rider problem.
 Free-rider: A person who receives the benefit of a good
but avoids paying for it.
• If a good is not excludable, people have incentive to be
free riders, because firms cannot prevent non-payers
from consuming the good.
• Result: The good is not produced, even if buyers
collectively value the good higher than the cost of
providing it.
• There is a need for government to provide
the good.
The Free-Rider Problem
• https://www.youtube.com/watch?v=Uo51GDk8G1Q
Common Resources
• Like public goods, common resources are not
excludable:
 Cannot prevent free-riders from using
 Little incentive for firms to provide
 There is a need for government to provide the
good.
• An additional problem with common resources is that
they are rival in consumption:
 Each person’s use reduces others’ ability to use it
 There is a need for government to ensure that
the good is not overused.
Tragedy of the Commons
• https://www.youtube.com/watch?v=CxC161GvMPc
Public Goods and Common
Resources
• For both public goods & common resources,
externalities arise because something of
value has no price attached to it.
• In this case, private decisions about
consumption and production in the market
can lead to an inefficient outcome. In
other words, there is a market failure.
• Therefore, there is a role for
governments to step in to potentially
raise economic well-being.
An externality is the
economic impact of
consuming or
producing a good on a
third party who isn’t
connected to the good
(E.g. positive externality
(clean air), negative
externality (pollution)).
Reading
• Textbook:
Mankiw, N. (2009). Principles of
economics (5th ed.). Mason, OH:
Thomson South-Western
Chapter 11

More Related Content

Similar to MBEC 6001 Pre-MBA Economics L5(1).pdf

Chapter 9 the economics of information & market failure
Chapter 9   the economics of information & market failureChapter 9   the economics of information & market failure
Chapter 9 the economics of information & market failure
skceducation
 
Common Pool Goods
Common Pool GoodsCommon Pool Goods
Market Failure.pptx
Market Failure.pptxMarket Failure.pptx
Market Failure.pptx
Jon Newland
 
finalPublic-Goods.pptx
finalPublic-Goods.pptxfinalPublic-Goods.pptx
finalPublic-Goods.pptx
AnamikaShakya4
 
Public Goods and Private Goods
Public Goods and Private GoodsPublic Goods and Private Goods
Public Goods and Private Goods
tutor2u
 
public-goods.ppt
public-goods.pptpublic-goods.ppt
public-goods.ppt
Jon Newland
 
Sustainability for HR Session 1
Sustainability for HR Session 1Sustainability for HR Session 1
Sustainability for HR Session 1
XLHR
 
Public goods
Public goodsPublic goods
Public goods
kanhaiya kumawat
 
Market faliure
Market faliure Market faliure
Market faliure
SamritiJamwal3
 
Public goods and common resources_ summary
Public goods and common resources_ summaryPublic goods and common resources_ summary
Public goods and common resources_ summary
Antonio Stark
 
Market Failure.pptx
Market Failure.pptxMarket Failure.pptx
Market Failure.pptx
SadiaRiazMinhas
 
Failure3
Failure3Failure3
Failure3
Corey Topf
 
Week 11_Lec 2 Public Goods and publically provided private goods.pptx
Week 11_Lec 2 Public Goods and publically provided private goods.pptxWeek 11_Lec 2 Public Goods and publically provided private goods.pptx
Week 11_Lec 2 Public Goods and publically provided private goods.pptx
naseebkhan46
 
Week 10_Lec 2 Public Goods and publically provided private goods.pptx
Week 10_Lec 2 Public Goods and publically provided private goods.pptxWeek 10_Lec 2 Public Goods and publically provided private goods.pptx
Week 10_Lec 2 Public Goods and publically provided private goods.pptx
naseebkhan46
 
Lecture17(ch15).ppt
Lecture17(ch15).pptLecture17(ch15).ppt
Lecture17(ch15).ppt
sadiqfarhan2
 
MECO 111 CHAPTER 8
MECO 111 CHAPTER 8MECO 111 CHAPTER 8
MECO 111 CHAPTER 8
awaismajeedbz
 
Unit 6 review_session
Unit 6 review_sessionUnit 6 review_session
Unit 6 review_session
Malcolm Harrison
 
Complete Economic Environment & Business Unit 4 revision
Complete Economic Environment & Business Unit 4 revisionComplete Economic Environment & Business Unit 4 revision
Complete Economic Environment & Business Unit 4 revision
Manishadhokia3105
 
Public vs private goods
Public vs private goodsPublic vs private goods
Public vs private goods
HafizMuhammadQasim5
 
Market Failure
Market FailureMarket Failure
Market Failure
Seemanto
 

Similar to MBEC 6001 Pre-MBA Economics L5(1).pdf (20)

Chapter 9 the economics of information & market failure
Chapter 9   the economics of information & market failureChapter 9   the economics of information & market failure
Chapter 9 the economics of information & market failure
 
Common Pool Goods
Common Pool GoodsCommon Pool Goods
Common Pool Goods
 
Market Failure.pptx
Market Failure.pptxMarket Failure.pptx
Market Failure.pptx
 
finalPublic-Goods.pptx
finalPublic-Goods.pptxfinalPublic-Goods.pptx
finalPublic-Goods.pptx
 
Public Goods and Private Goods
Public Goods and Private GoodsPublic Goods and Private Goods
Public Goods and Private Goods
 
public-goods.ppt
public-goods.pptpublic-goods.ppt
public-goods.ppt
 
Sustainability for HR Session 1
Sustainability for HR Session 1Sustainability for HR Session 1
Sustainability for HR Session 1
 
Public goods
Public goodsPublic goods
Public goods
 
Market faliure
Market faliure Market faliure
Market faliure
 
Public goods and common resources_ summary
Public goods and common resources_ summaryPublic goods and common resources_ summary
Public goods and common resources_ summary
 
Market Failure.pptx
Market Failure.pptxMarket Failure.pptx
Market Failure.pptx
 
Failure3
Failure3Failure3
Failure3
 
Week 11_Lec 2 Public Goods and publically provided private goods.pptx
Week 11_Lec 2 Public Goods and publically provided private goods.pptxWeek 11_Lec 2 Public Goods and publically provided private goods.pptx
Week 11_Lec 2 Public Goods and publically provided private goods.pptx
 
Week 10_Lec 2 Public Goods and publically provided private goods.pptx
Week 10_Lec 2 Public Goods and publically provided private goods.pptxWeek 10_Lec 2 Public Goods and publically provided private goods.pptx
Week 10_Lec 2 Public Goods and publically provided private goods.pptx
 
Lecture17(ch15).ppt
Lecture17(ch15).pptLecture17(ch15).ppt
Lecture17(ch15).ppt
 
MECO 111 CHAPTER 8
MECO 111 CHAPTER 8MECO 111 CHAPTER 8
MECO 111 CHAPTER 8
 
Unit 6 review_session
Unit 6 review_sessionUnit 6 review_session
Unit 6 review_session
 
Complete Economic Environment & Business Unit 4 revision
Complete Economic Environment & Business Unit 4 revisionComplete Economic Environment & Business Unit 4 revision
Complete Economic Environment & Business Unit 4 revision
 
Public vs private goods
Public vs private goodsPublic vs private goods
Public vs private goods
 
Market Failure
Market FailureMarket Failure
Market Failure
 

Recently uploaded

Gym business MODEL .pdf .
Gym business MODEL .pdf                 .Gym business MODEL .pdf                 .
Gym business MODEL .pdf .
Divyanshu56740
 
Girls Call Vashi 9910780858 Provide Best And Top Girl Service And No1 in City
Girls Call Vashi 9910780858 Provide Best And Top Girl Service And No1 in CityGirls Call Vashi 9910780858 Provide Best And Top Girl Service And No1 in City
Girls Call Vashi 9910780858 Provide Best And Top Girl Service And No1 in City
77sayre
 
Path to the next normal collection McKinsey
Path to the next normal collection McKinseyPath to the next normal collection McKinsey
Path to the next normal collection McKinsey
MajIman2
 
Qatar Airways Kuwait Office.pdf.........
Qatar Airways Kuwait Office.pdf.........Qatar Airways Kuwait Office.pdf.........
Qatar Airways Kuwait Office.pdf.........
anissageorge9890
 
WAM Corporate Presentation July 2024.pdf
WAM Corporate Presentation July 2024.pdfWAM Corporate Presentation July 2024.pdf
WAM Corporate Presentation July 2024.pdf
Western Alaska Minerals Corp.
 
High Profile Girls Call Bhubaneswar 🎈🔥000XX00000 🔥💋🎈 Provide Best And Top Gir...
High Profile Girls Call Bhubaneswar 🎈🔥000XX00000 🔥💋🎈 Provide Best And Top Gir...High Profile Girls Call Bhubaneswar 🎈🔥000XX00000 🔥💋🎈 Provide Best And Top Gir...
High Profile Girls Call Bhubaneswar 🎈🔥000XX00000 🔥💋🎈 Provide Best And Top Gir...
dimplekumaridk322
 
Corporate Governance for South African Mining Companies
Corporate Governance for South African Mining CompaniesCorporate Governance for South African Mining Companies
Corporate Governance for South African Mining Companies
James AH Campbell
 
AI and Best Use Cases for Your Personal Life.pptx
AI and Best Use Cases for Your Personal Life.pptxAI and Best Use Cases for Your Personal Life.pptx
AI and Best Use Cases for Your Personal Life.pptx
Brian Frerichs
 
Why is Structural Engineering Critical in Disaster Preparedness and Resilienc...
Why is Structural Engineering Critical in Disaster Preparedness and Resilienc...Why is Structural Engineering Critical in Disaster Preparedness and Resilienc...
Why is Structural Engineering Critical in Disaster Preparedness and Resilienc...
grouphirani24
 
STEPIC Innovations 2026 futurism publications
STEPIC Innovations 2026 futurism publicationsSTEPIC Innovations 2026 futurism publications
STEPIC Innovations 2026 futurism publications
mcynthus
 
Business Model Canvas for Successful Business
Business Model Canvas for Successful BusinessBusiness Model Canvas for Successful Business
Business Model Canvas for Successful Business
SuganthiPrakash1
 
How Do Flange Adapters Work and Why Are They Essential?
How Do Flange Adapters Work and Why Are They Essential?How Do Flange Adapters Work and Why Are They Essential?
How Do Flange Adapters Work and Why Are They Essential?
Texas Flange
 
A Playbook for Solo & Siloed Data Science Practitioners
A Playbook for Solo & Siloed Data Science PractitionersA Playbook for Solo & Siloed Data Science Practitioners
A Playbook for Solo & Siloed Data Science Practitioners
Tim Wilson
 
Virtual Production Tool Set and Technologies Redefining Cinema.pdf
Virtual Production Tool Set and Technologies Redefining Cinema.pdfVirtual Production Tool Set and Technologies Redefining Cinema.pdf
Virtual Production Tool Set and Technologies Redefining Cinema.pdf
virtualproduction38
 
Top five predictions today, .
Top five predictions today,            .Top five predictions today,            .
Top five predictions today, .
Rupasingh82
 
TEST BANK For Auditing & Assurance Services A Systematic Approach, 12th Editi...
TEST BANK For Auditing & Assurance Services A Systematic Approach, 12th Editi...TEST BANK For Auditing & Assurance Services A Systematic Approach, 12th Editi...
TEST BANK For Auditing & Assurance Services A Systematic Approach, 12th Editi...
kevinkariuki227
 
Test Bank For Principles Of Cost Accounting, 17th Edition Edward J. Vander...
Test Bank For Principles Of Cost Accounting, 	  17th Edition Edward J. Vander...Test Bank For Principles Of Cost Accounting, 	  17th Edition Edward J. Vander...
Test Bank For Principles Of Cost Accounting, 17th Edition Edward J. Vander...
kevinkariuki227
 
84th Marketing Club (OTC Marketing) Dr.Mahmoud Hamed 23rd Cairo.pdf
84th Marketing Club (OTC Marketing) Dr.Mahmoud Hamed 23rd Cairo.pdf84th Marketing Club (OTC Marketing) Dr.Mahmoud Hamed 23rd Cairo.pdf
84th Marketing Club (OTC Marketing) Dr.Mahmoud Hamed 23rd Cairo.pdf
ahmed614380
 
HiFi Girls Call Surat 000XX00000 Provide Best And Top Girl Service And No1 in...
HiFi Girls Call Surat 000XX00000 Provide Best And Top Girl Service And No1 in...HiFi Girls Call Surat 000XX00000 Provide Best And Top Girl Service And No1 in...
HiFi Girls Call Surat 000XX00000 Provide Best And Top Girl Service And No1 in...
pranjalgarg474
 
YouTube Automation Step-by-step Guide.pdf
YouTube Automation Step-by-step Guide.pdfYouTube Automation Step-by-step Guide.pdf
YouTube Automation Step-by-step Guide.pdf
grizzyhuncho
 

Recently uploaded (20)

Gym business MODEL .pdf .
Gym business MODEL .pdf                 .Gym business MODEL .pdf                 .
Gym business MODEL .pdf .
 
Girls Call Vashi 9910780858 Provide Best And Top Girl Service And No1 in City
Girls Call Vashi 9910780858 Provide Best And Top Girl Service And No1 in CityGirls Call Vashi 9910780858 Provide Best And Top Girl Service And No1 in City
Girls Call Vashi 9910780858 Provide Best And Top Girl Service And No1 in City
 
Path to the next normal collection McKinsey
Path to the next normal collection McKinseyPath to the next normal collection McKinsey
Path to the next normal collection McKinsey
 
Qatar Airways Kuwait Office.pdf.........
Qatar Airways Kuwait Office.pdf.........Qatar Airways Kuwait Office.pdf.........
Qatar Airways Kuwait Office.pdf.........
 
WAM Corporate Presentation July 2024.pdf
WAM Corporate Presentation July 2024.pdfWAM Corporate Presentation July 2024.pdf
WAM Corporate Presentation July 2024.pdf
 
High Profile Girls Call Bhubaneswar 🎈🔥000XX00000 🔥💋🎈 Provide Best And Top Gir...
High Profile Girls Call Bhubaneswar 🎈🔥000XX00000 🔥💋🎈 Provide Best And Top Gir...High Profile Girls Call Bhubaneswar 🎈🔥000XX00000 🔥💋🎈 Provide Best And Top Gir...
High Profile Girls Call Bhubaneswar 🎈🔥000XX00000 🔥💋🎈 Provide Best And Top Gir...
 
Corporate Governance for South African Mining Companies
Corporate Governance for South African Mining CompaniesCorporate Governance for South African Mining Companies
Corporate Governance for South African Mining Companies
 
AI and Best Use Cases for Your Personal Life.pptx
AI and Best Use Cases for Your Personal Life.pptxAI and Best Use Cases for Your Personal Life.pptx
AI and Best Use Cases for Your Personal Life.pptx
 
Why is Structural Engineering Critical in Disaster Preparedness and Resilienc...
Why is Structural Engineering Critical in Disaster Preparedness and Resilienc...Why is Structural Engineering Critical in Disaster Preparedness and Resilienc...
Why is Structural Engineering Critical in Disaster Preparedness and Resilienc...
 
STEPIC Innovations 2026 futurism publications
STEPIC Innovations 2026 futurism publicationsSTEPIC Innovations 2026 futurism publications
STEPIC Innovations 2026 futurism publications
 
Business Model Canvas for Successful Business
Business Model Canvas for Successful BusinessBusiness Model Canvas for Successful Business
Business Model Canvas for Successful Business
 
How Do Flange Adapters Work and Why Are They Essential?
How Do Flange Adapters Work and Why Are They Essential?How Do Flange Adapters Work and Why Are They Essential?
How Do Flange Adapters Work and Why Are They Essential?
 
A Playbook for Solo & Siloed Data Science Practitioners
A Playbook for Solo & Siloed Data Science PractitionersA Playbook for Solo & Siloed Data Science Practitioners
A Playbook for Solo & Siloed Data Science Practitioners
 
Virtual Production Tool Set and Technologies Redefining Cinema.pdf
Virtual Production Tool Set and Technologies Redefining Cinema.pdfVirtual Production Tool Set and Technologies Redefining Cinema.pdf
Virtual Production Tool Set and Technologies Redefining Cinema.pdf
 
Top five predictions today, .
Top five predictions today,            .Top five predictions today,            .
Top five predictions today, .
 
TEST BANK For Auditing & Assurance Services A Systematic Approach, 12th Editi...
TEST BANK For Auditing & Assurance Services A Systematic Approach, 12th Editi...TEST BANK For Auditing & Assurance Services A Systematic Approach, 12th Editi...
TEST BANK For Auditing & Assurance Services A Systematic Approach, 12th Editi...
 
Test Bank For Principles Of Cost Accounting, 17th Edition Edward J. Vander...
Test Bank For Principles Of Cost Accounting, 	  17th Edition Edward J. Vander...Test Bank For Principles Of Cost Accounting, 	  17th Edition Edward J. Vander...
Test Bank For Principles Of Cost Accounting, 17th Edition Edward J. Vander...
 
84th Marketing Club (OTC Marketing) Dr.Mahmoud Hamed 23rd Cairo.pdf
84th Marketing Club (OTC Marketing) Dr.Mahmoud Hamed 23rd Cairo.pdf84th Marketing Club (OTC Marketing) Dr.Mahmoud Hamed 23rd Cairo.pdf
84th Marketing Club (OTC Marketing) Dr.Mahmoud Hamed 23rd Cairo.pdf
 
HiFi Girls Call Surat 000XX00000 Provide Best And Top Girl Service And No1 in...
HiFi Girls Call Surat 000XX00000 Provide Best And Top Girl Service And No1 in...HiFi Girls Call Surat 000XX00000 Provide Best And Top Girl Service And No1 in...
HiFi Girls Call Surat 000XX00000 Provide Best And Top Girl Service And No1 in...
 
YouTube Automation Step-by-step Guide.pdf
YouTube Automation Step-by-step Guide.pdfYouTube Automation Step-by-step Guide.pdf
YouTube Automation Step-by-step Guide.pdf
 

MBEC 6001 Pre-MBA Economics L5(1).pdf

  • 1. MBEC 6001 Pre-Economics L5: Public Goods, Public Expenditures & Common Resources
  • 2. Introduction • We consume many goods without paying: parks, national defense, clean air & water. • When goods have no prices, the market forces that normally allocate resources are absent. • The private market may fail to provide the socially efficient quantity of such goods. • In this case, governments can sometimes improve market outcomes.
  • 4. Important Characteristics of Goods • A good is excludable if a person can be prevented from using it.  Excludable: Cinema tickets, airplane tickets  Not excludable: Street lighting, national defense • A good is rival in consumption if one person’s use of it diminishes others’ use.  Rival: Fuel, food  Not rival: Museums, paintings
  • 5. The Different Types of Goods • Using these two characteristics, most goods can be classified into four categories: Rival in Consumption? Yes No Excludable? Yes Private Goods Clothing Club Goods Cable TV No Common Resources The environment Public Goods Clean air
  • 6. The Different Types of Goods Private Goods Jeans Hamburgers Contact lenses Public Goods Fire works Mosquito protection Traffic control Club Goods Private parks Wifi Computer software Common Goods Public roads Fish in the Ocean Public schooling Excludable & Rival in consumption Non-excludable & non-rival in consumption Excludable, but non-rival in consumption Non-excludable, but rival in consumption
  • 8. Public Goods • Public goods are difficult for private markets to provide because of the free-rider problem.  Free-rider: A person who receives the benefit of a good but avoids paying for it. • If a good is not excludable, people have incentive to be free riders, because firms cannot prevent non-payers from consuming the good. • Result: The good is not produced, even if buyers collectively value the good higher than the cost of providing it. • There is a need for government to provide the good.
  • 9. The Free-Rider Problem • https://www.youtube.com/watch?v=Uo51GDk8G1Q
  • 10. Common Resources • Like public goods, common resources are not excludable:  Cannot prevent free-riders from using  Little incentive for firms to provide  There is a need for government to provide the good. • An additional problem with common resources is that they are rival in consumption:  Each person’s use reduces others’ ability to use it  There is a need for government to ensure that the good is not overused.
  • 11. Tragedy of the Commons • https://www.youtube.com/watch?v=CxC161GvMPc
  • 12. Public Goods and Common Resources • For both public goods & common resources, externalities arise because something of value has no price attached to it. • In this case, private decisions about consumption and production in the market can lead to an inefficient outcome. In other words, there is a market failure. • Therefore, there is a role for governments to step in to potentially raise economic well-being. An externality is the economic impact of consuming or producing a good on a third party who isn’t connected to the good (E.g. positive externality (clean air), negative externality (pollution)).
  • 13. Reading • Textbook: Mankiw, N. (2009). Principles of economics (5th ed.). Mason, OH: Thomson South-Western Chapter 11