Ch 11 Public Goods and Common Resources

Importance of Property rights

When the market fails to allocate resources efficiently then property rights are not well-established (i.e. some item of value does not have an owner with the legal authority to control it). When the absence of property rights causes a market failure, the government can potentially solve the problem

Which categories of goods are excludable? a) private goods and club goods b) private goods and common resources c) public goods and club goods' d) public goods and common resources

a) private goods and club goods

Free goods

private market cannot ensure that the good is produced or consumed in the proper amounts; difficult to allocate resources since market sources are absent

Why does the free rider problem induce the government to provide public goods?

Because of the cost benefit analysis: The government can make everyone better off by providing the public good and paying for it with tax revenue opposed to potentially not having these goods (ex: light houses)

Why do governments try to limit the use of common resources?

Because over use can cause problems: drought, extinction of cows, congestion, pot holes

SUMMARY **

Goods differ in whether they are excludable and whether they are rival. -A good is excludable if it is possible to prevent someone from using it. -A good is rival if one person's enjoyment of the good prevents other people from enjoying the same unit of the good.

Value of Statistical life

The amount individuals are willing to pay to reduce the chance that they will die

Public goods are a) efficiently provided by market forces b) under provided in the absence of government c) overused in the absence of government d) a type of natural monopoly

a) efficiently provided by market forces

Tragedy of the Commons

a parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole. -Common resources tend to be used excessively when individuals are not charged for their usage. This is similar to a negative externality

free rider

a person who receives the benefits of a good but avoids paying for it creates the problem that since people cannot be excluded from enjoying the benefits of a public good, individuals may withhold paying for the good hoping that others will pay for it. The free-rider problem prevents private markets from supplying public goods

cost benefit analysis

a study that compares the costs and benefits to society of providing a public good; helps the government decided whether to provide a public good or not

Which of the following is an example of a public good? a) residential housing b) national defense c) restaurant meals d) fish in the ocean

b) national defense

Which categories of goods are rival in consumption? a) private goods and club goods b) private goods and common resources c) public goods and club goods' d) public goods and common resources

b) private goods and common resources

Which of the following is an example of a common resource? a) residential housing b) national defense c) restaurant meals d) fish in the ocean

d) fish in the ocean

Common resources are a) efficiently provided by market forces b) under provided in the absence of government c) overused in the absence of government d) a type of natural monopoly

c) overused in the absence of government

Private goods

goods that are both excludable and rival in consumption; restaurant meals, clothing, congested toll roads Ex: from a store with only one type of shirt with limited amounts or each size, you can buy all the shirts and you buy all the shirts in one size

club goods/ natural monopolies

goods that are excludable but not rival in consumption, cable TV, uncongested toll roads Ex: Fire protection in a rural small town with only 1 fire fighter and 1 fire fighter truck. If I have a fire first, then I am the only person who gets that protection at that time but tomorrow if someone else has a fire, I cannot keep the fire truck from going there

public goods

goods that are neither excludable nor rival in consumption; national defense, public schools, air quality, uncongested nontoll roads Ex: tornado siren, you cannot keep me from hearing the siren or from being warned by the siren

common resource

goods that are rival in consumption but not excludable; fisheries, timber on public land, congested nontoll roads Ex: The environment, I can buy a plot and build my house on it and keep you from having that very spot but I cannot keep you from having your own plot somewhere in the world

Excludability

the property of a good whereby a person can be prevented from using it

Rivalry in consumption

the property of a good whereby one person's use diminishes other people's use