Chapter 17-Public Goods and Common Resources

Goods for which consumption is inefficiently low are.....

Artificially Scarce Goods

Those goods that are excludable, but nonrival in consumption; must be paid for in order for the consumer to consume the good, but consumption of the good does not diminish the ability of other consumers to consume the same unit of the good

Artificially scarce goods

What is an example of a public good?

Broadcast television

Through this process, the government decides on the optimal amount of a public good to provide, by estimating the social benefits and social costs of providing the public good.

Cost-benefit analysis

What is an example of a nonrival good?

Digital Music

The MSB from consumption of a public good is always greater than what?

Marginal Private Benefit

Non excludable goods include what examples.....

National defense, police, and fire rescue

When a good is either non excludable or non rival, does the market produce the efficient quantity of the good?

No

People who do not pay cannot be easily prevented from using this good

Non excludable

More than one person can consume the same unit of this good at the same time

Nonrival

Common resources are subject to what?

Overuse

What are the ways in which society could intervene in the use of a common resource to get individual users of the resource to take into account the costs they impose on others?

Pigouvian Tax, tradable licenses, property rights

What are the four types of products?

Private Goods (excludable and rival), public goods (non excludable and nonrival), Artificially scarce goods (excludable, nontrivial), common resources (non excludable, rival)

A good that benefits many people whether or not they have paid for it and whose benefits to an individual are not affected by how many other people are consuming the good

Public Good

A good that is non rival and nonexcludable

Public good

What is the optimal level of public good provision?

Where MSC=MSB

When a good is excludable and rival, can the market provide the good efficiently?

Yes (Private Goods)

A good that many people consume whether or not they have paid for the good, and whose consumption by each person reduces the amount of the good available to other people

common resource

Although it is relatively easy to estimate the ____ of providing a public good, it is much more difficult to estimate the _____ from the good

cost, benefit

People who don't pay can easily be prevented from using this type of good

excludable

Because public goods are non excludable, they suffer from the _______ problem: which results in firms being unwilling to produce the good since they know it will be possible for consumers to consume without paying for it

free rider

In the case of a common resource, society must do what in the market to find a way to get the individual users of the resource to take into account the costs they impose on others

intervene

What about a good determines if the market can provide it efficiently?

its characteristics

Individuals have an incentive to do what, when asked about the benefits they receive from a public good because of the nature of the public good

lie

When consumers free ride, too _____ of the good is produced in the market.

little

When consumers are forced to pay a price greater than zero for a non rival good, they demand too _____ of the good, and the market produces an ______ quantity of the good

little, inefficient

For both artificially scarce goods and natural monopolies, producers are willing to produce only if they can charge a price that is greater than the __________ of producing the good, but this price implies that the producer is producing an inefficiently low amount of output

marginal cost

Common resources create the problem of what?

negative externality (individuals consume an inefficiently high amount of the good because they ignore, or fail to internalize, the external costs they impose on society)

When a good is _________, this creates a free rider problem in which consumers are not willing to pay for the good, but instead want to free ride on those who do pay for the good

nonexcludable

These two differences result in the market being unable to provide an efficient amount of a public good

nonrival, nonexcludable

Common resources are subject to ______ by individuals because individuals will continue to consume units of the good until their marginal benefit from consumption of the common resource is equal to zero

overuse

The depletion of a common resource that occurs when individuals ignore the fact that their use depletes the amount of the resource remaining for others

overuse

A ______ good may be provided through voluntary contributions or by self interested individuals or firms who produce them with the hope of earning money through some indirect means; may also be provided through social encouragement or social pressure and funded through taxation

public

The same unit cannot be consumed by more than one person at a time of this good

rival

In the case of a public good, the marginal social benefit from the public good is equal to what?

sum of the individual marginal benefits

Because public goods are nonrival in consumption, it is inefficient to charge people for consuming these goods, since the marginal cost of another person consuming the good is equal to what?

zero

Since artificially scarce goods are non rival in competition, the marginal cost of an individual's consumption is equal to what?

zero

When a market is non rival in consumption, the cost of providing an additional unit of the good is equal to what?

zero