This document discusses public goods and their efficient provision. It defines public goods as nonrival and nonexcludable, meaning consumption by one person does not reduce availability to others and it is difficult to prevent others from consuming them. This leads to a free rider problem where people have an incentive to let others pay for public goods while still enjoying the benefits. While private markets fail to efficiently provide public goods due to this issue, government intervention through taxation can potentially solve the free rider problem and lead to more efficient outcomes. The document also discusses the debate around privatizing certain goods and services traditionally provided publicly.
Which goods and services are best left to the market? And which are more efficiently and fairly provided as collective consumption goods by the state? This is at the heart of your revision of public goods. Central to your revision will be to understand why public goods may not be provided by the market. You can work this out by distinguishing between public and private goods and focusing on the ideas of rivalry and excludability in consumption. Students should understand the free rider and valuation problems – there are big debates in economics about the optimum size of the state. Rapid changes in technology are also changing the nature of what is and what is not a public good.
Since pollution is an externality firms will not undertake to control their pollution. The answer is in government regulations. Coase argues that in perfect competition with laissez faire, govt regulation is not needed. Instead bargaining between the polluters and their victims can lead to an optimal situation. But this pre supposes equality in bargaining, and does not take note of ecological consequences of pollution.
Types of Market Failure content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class.
Subtopics
Intro to Market Failure
Different Types of Market Failure
In economics, the theory of the second best concerns the situation when one or more optimality conditions cannot be satisfied.
The economists Richard Lipsey and Kelvin Lancaster showed in 1956, that if one optimality condition in an economic model cannot be satisfied, it is possible that the next-best solution involves changing other variables away from the values that would otherwise be optimal.
Politically, the theory implies that if it is infeasible to remove a particular market distortion, introducing a second (or more) market distortion may partially counteract the first, and lead to a more efficient outcome.
Which goods and services are best left to the market? And which are more efficiently and fairly provided as collective consumption goods by the state? This is at the heart of your revision of public goods. Central to your revision will be to understand why public goods may not be provided by the market. You can work this out by distinguishing between public and private goods and focusing on the ideas of rivalry and excludability in consumption. Students should understand the free rider and valuation problems – there are big debates in economics about the optimum size of the state. Rapid changes in technology are also changing the nature of what is and what is not a public good.
Since pollution is an externality firms will not undertake to control their pollution. The answer is in government regulations. Coase argues that in perfect competition with laissez faire, govt regulation is not needed. Instead bargaining between the polluters and their victims can lead to an optimal situation. But this pre supposes equality in bargaining, and does not take note of ecological consequences of pollution.
Types of Market Failure content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class.
Subtopics
Intro to Market Failure
Different Types of Market Failure
In economics, the theory of the second best concerns the situation when one or more optimality conditions cannot be satisfied.
The economists Richard Lipsey and Kelvin Lancaster showed in 1956, that if one optimality condition in an economic model cannot be satisfied, it is possible that the next-best solution involves changing other variables away from the values that would otherwise be optimal.
Politically, the theory implies that if it is infeasible to remove a particular market distortion, introducing a second (or more) market distortion may partially counteract the first, and lead to a more efficient outcome.
In the market economy Consumer must be bid for what they wish to buy and must thus reveal their preferences to produce. Producer, in trying to maximize their profits, will produce what consumer want to by and will do so at least cost.
In reality, various difficulties arise. imperfect competition, production may be decreasing cost, Consumer may lack of information.
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdfTechSoup
In this webinar you will learn how your organization can access TechSoup's wide variety of product discount and donation programs. From hardware to software, we'll give you a tour of the tools available to help your nonprofit with productivity, collaboration, financial management, donor tracking, security, and more.
This is a presentation by Dada Robert in a Your Skill Boost masterclass organised by the Excellence Foundation for South Sudan (EFSS) on Saturday, the 25th and Sunday, the 26th of May 2024.
He discussed the concept of quality improvement, emphasizing its applicability to various aspects of life, including personal, project, and program improvements. He defined quality as doing the right thing at the right time in the right way to achieve the best possible results and discussed the concept of the "gap" between what we know and what we do, and how this gap represents the areas we need to improve. He explained the scientific approach to quality improvement, which involves systematic performance analysis, testing and learning, and implementing change ideas. He also highlighted the importance of client focus and a team approach to quality improvement.
Synthetic Fiber Construction in lab .pptxPavel ( NSTU)
Synthetic fiber production is a fascinating and complex field that blends chemistry, engineering, and environmental science. By understanding these aspects, students can gain a comprehensive view of synthetic fiber production, its impact on society and the environment, and the potential for future innovations. Synthetic fibers play a crucial role in modern society, impacting various aspects of daily life, industry, and the environment. ynthetic fibers are integral to modern life, offering a range of benefits from cost-effectiveness and versatility to innovative applications and performance characteristics. While they pose environmental challenges, ongoing research and development aim to create more sustainable and eco-friendly alternatives. Understanding the importance of synthetic fibers helps in appreciating their role in the economy, industry, and daily life, while also emphasizing the need for sustainable practices and innovation.
Unit 8 - Information and Communication Technology (Paper I).pdfThiyagu K
This slides describes the basic concepts of ICT, basics of Email, Emerging Technology and Digital Initiatives in Education. This presentations aligns with the UGC Paper I syllabus.
The Indian economy is classified into different sectors to simplify the analysis and understanding of economic activities. For Class 10, it's essential to grasp the sectors of the Indian economy, understand their characteristics, and recognize their importance. This guide will provide detailed notes on the Sectors of the Indian Economy Class 10, using specific long-tail keywords to enhance comprehension.
For more information, visit-www.vavaclasses.com
Palestine last event orientationfvgnh .pptxRaedMohamed3
An EFL lesson about the current events in Palestine. It is intended to be for intermediate students who wish to increase their listening skills through a short lesson in power point.
Ethnobotany and Ethnopharmacology:
Ethnobotany in herbal drug evaluation,
Impact of Ethnobotany in traditional medicine,
New development in herbals,
Bio-prospecting tools for drug discovery,
Role of Ethnopharmacology in drug evaluation,
Reverse Pharmacology.
3. Public Goods Defined
• Pure public goods share two
characteristics
– Nonrival – Cost of another person
consuming the good is zero
– Nonexcludable – Very expensive to prevent
others from consuming the good
4. 4
Marginal Costs of Consuming and Producing a
Pure Public Good
0
Cost(Dollars)
•Number of Consumers
200
Marginal Cost of Allowing an
Additional Person to Consume a
Given Quantity of Pure Public Good
1 KANHAIYA KUMAWAT
5. 5
Marginal Costs of Consuming a Pure Public Good
Benefit of consuming
a Pure Public Good
200
N persons
Benefitperperson
(Dollars)
0
KANHAIYA KUMAWAT
6. Examples of public and private
goods
• Public Goods
– National defense
– House cleaning in an
apartment with many
roommates
– Fireworks display
– Music file sharing
– Uncongested freeway
• Private goods
– Pizza
– Health care
– Congested freeway
– Public housing
6KANHAIYA KUMAWAT
7. Impure public goods
• Most goods that are thought of as public
goods may not strictly satisfy the nonrival
or nonexcludable assumption.
– A scenic view is a public good without
congestion, but the quality diminishes as
more the number of sightseers increases.
– Thus, a scenic view becomes rival.
8. 8
Four types of goods
Rival in consumption?
Yes No
Excludable?
Yes
Private goods
- Ice-cream cones
- Clothing
- Food
Club goods
- Higher education
- Cable TV
- Uncongested toll roads
No
Congestible (position)
goods (most in real
world...)
- Fish in the ocean
- The environment
- Congested nontoll roads
Public goods
- Tornado system
- National defense
- Uncongested nontoll roads
Goods can be grouped into four categories according to two characteristics:
(1) A good is excludable if people can be prevented from using it.
(2) A good is rival in consumption if one person’s use of the good diminishes other
people’s use of it.
KANHAIYA KUMAWAT
9. Congestible public goods
(position)
Some public goods are congestible – roads, bridges,
public parks etc.
Green line – line of congestion = decreasing benefit
per person
Benefit/
Fee (per
person)
# of users
Demand/Users’ Value (Benefit)
10. Congestible public goods
(position goods) with fee
Benefit/
Fee
# of users
•Demand/Users Value
If you charge a fee to recoup the cost of the bridge welfare goes down.
FEE
REVENUE
FROM
THE FEE
LOST
WELFARE
11. Club goods
Some public goods are easily excludable (by
regulation, law, agreement etc.) and after
exclusion of some people, they are nonrival for
club members (the club has Nclub members) –
universities, etc.
Benefit
# of users
Demand/Users’ Value
Nclub Nmax
12. Valuation of public goods
• Everyone consumes same quantity of
public good
• Marginal benefit of public good varies by
person
– In the housecleaning example, different
roommates value the clean apartment
differently.
13. Private goods can be provided by
the public sector
• These are called “publicly provided private
goods.”
• Key criteria: is the good rival and excludable?
• Public housing is rival (one family consumes
one apartment) and excludable (easy to
prevent consumption).
14. Efficient provision of private goods
– derivation of aggregate demand
• Each person’s demand curve represents the
willingness-to-pay for an additional unit of a
good.
• Private good: holding P constant, add together
individual quantities to get Q.
• Figure 4.1:
• Horizontal summation
16. Equilibrium in private goods
market
• Equilibrium where supply curve intersects
aggregate demand curve.
• Everyone pays the same price, P.
• Individuals consume different quantities,
Q.
• Pareto efficient.
17. Efficient provision of public goods
• Consider a fireworks display as a public good –
it is nonrival and nonexcludable.
• Bigger displays give higher benefit.
• Figure 4.2:
• Public good: holding Q constant, add together
individual willingness-to-pay to get P.
• Vertical summation.
19. Efficiency in public goods market
• Everyone consumes the same quantity,
Q
• Individual’s marginal benefit varies.
• Efficiency requires that the sum of
individual marginal benefits equals the
marginal cost.
20. Efficient allocations of public
goods: Problems
• Although a competitive market will provide
private goods efficiently, will the same be true
for public goods?
• People may have incentives to hide their true
preferences for a public good.
• If Adam can get Eve to pay for the public good,
he can use his income for other purposes and
still enjoy the public good.
21. Problems, continued
• This incentive to let others pay for the
public good while still enjoying the
benefits is known as the “free rider
problem.”
• The private market may therefore fall
short of providing the efficient amount of
the public good.
22. Problems, continued
• This incentive to free ride occurs
because the public good is nonrival and
nonexcludable.
• A person gets to consume the good even
if he does not pay for it.
23. Solutions to the free rider problem
• Government intervention can potentially lead to a more
efficient outcome.
– Government can use coercive power to force people to
pay for public goods, through taxation.
• Free riding is not a fact, however. There are instances
when individuals do act collectively without coercion.
• Laboratory experiments on college students contradict
the notion that free riding will lead to zero contributions
for the public good. Some suggest the results derive
from a “warm glow” of giving.
23KANHAIYA KUMAWAT
24. Privatization debate
• Privatization means taking services that are
supplied by the government and turning them
over to the private sector for provision and/or
production.
• Examples with competing public/private
provision include policing, parks, and even the
judicial system.
24KANHAIYA KUMAWAT
25. Private provision
• Mix of private and public provision depends on:
– Relative wage and materials costs: Which sector is less
expensive?
– Administrative costs: Can these fixed costs be spread
over a large group of people?
– Diversity of tastes. Private provision is more efficient
with diverse tastes because people can tailor their
consumption to their own tastes.
– Distributional issues. Notions of fairness may require
that some commodities are available to everyone – such
as education or health care.
25KANHAIYA KUMAWAT
26. Private production
• Even if there is agreement that the public sector should
provide a good, it is not clear whether the public sector
should produce it.
– Airport security workers are a timely example.
• Public sector managers may not have a strong incentive
to control costs because of the lack of profit motive or
fears of takeovers or bankruptcy.
• Quality of public services may be higher, however. This
is more relevant when contracts are incomplete.
26KANHAIYA KUMAWAT
27. Recap of public goods
• Public good definition
• Derivation of aggregate demand curves
• Inefficient provision of public goods
• Free rider problem
• Public versus private provision
• Education
27KANHAIYA KUMAWAT