chapter 11

name some important common resources and if negative exterality how can they be fixed?

1. clean air and water, negative externality :pollution. gov't fixes by corrective taxes or regulations. 2.congested roads, neg ext: congestion. Fixed by charge drivers a toll or tax on gasoline (corrective taxes) 3. fish, whales and other wildlife, fixed by regulations like hunting/fishing licenses, and limits on size/quantity of fish.

what are some of the most important public goods?

1.national defense (very expensive), 2.fighting poverty (welfare system, food stamps) 3.basic research (general knowledge)

tragedy in commons

A parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole.

How can the government remedy the free rider problem?

If the government decides that the total benefits of a public good exceed its costs, it can provide the public good, pay for it with tax revenue, and make everyone better off.

why does the free rider problem induce government to produce public goods?

The free-rider problem induces the government to provide public goods because the private market will not produce an efficient quantity on its own. The government uses tax revenue to provide the good, everyone pays for it, and everyone enjoys its benefits.

how should the government decide whether or not to provide a public good?

The government should decide whether to provide a public good by comparing the good's costs to its benefits. If the benefits exceed the costs, society is better off.

how can government fix market failure due to the absence of property rights?

The government to help define property rights and thereby unleash market forces. Regulate private market behavior. Use tax revenue to supply a good that the market fails to supply.

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

When one person uses a common resource, he or she diminishes other people's enjoyment of it. Because of this negative externality, common resources tend to be used excessively.

the free rider problem

a person who receives benefit of a good but does not pay for it. This prevents the private market from supplying the good. (public goods)

cost benefit analysis

an estimate of the total costs and benefits of the project to society as a whole. No price signals to observe. Approximation at best.

why do most markets fail to allocate resources efficiently?

because property rights are not well established and some items of value do not have an owner with the legal authority to control it. Ex(national defense is good by no one can control it.)

club goods

excludable but not rival in consumption. One type of natural monopoly

private goods

excludable, and rival in consumption ex. ice cream

public goods

neither excludable or rival in consumption ex. siren. positive externality

common resource

not excludable, rival in consumption ex. fish in the lake. negative externality

rival in consumption

one persons use of a good reduces another persons ability to use it

excludability

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

how can the govt fix a tragedy of commons?

regulation or taxes to reduce consumption of a common resource or turn the common resource into a private good.