Chapter 17: Public Goods and Common Resources
Free-Rider problem
problem that results when individuals who have no incentive to pay for their own consumption of a good take a "free ride" on anyone who does pay; a problem with goods that are nonexcludable.
Bob can pay to support his local public radio station, which depends on donations to be as effective as possible. Bob listens to the radio station several hours per day but never donates since he suspects that other people will donate enough to keep the station on the air.
Free-riding
Cost-benefit analysis
an estimation and comparison of the costs and benefits of providing a good. When governments use cost-benefit analysis, they estimate the social costs and social benefits of providing a public good.
Excludeable
referring to a good, describes the case in which the supplier can prevent those who do not pay from consuming the good. Ex: Farmers can decide who to sell wheat to based off who pays.
Nonexcludable
referring to a good, describes the case in which the supplier cannot prevent consumption by people who do not pay for it. Ex: Firemen
Select the best definition of a public good.
A good that is nonexcludable and nonrival in consumption.
Jim is working on a group project for a class in which he wants a high grade. However, since the grades are assigned to the group as a whole and he knows that the other group members will pick up most of the extra work, Jim calls in sick and plays video games on his Dream Station 6464.
Free-riding
Public goods
Goods that are neither excludable nor rival in consumption. Ex: public sewer system
Drew always buys the lunch special for $5 at the restaurant across the street from where he works. If he decided to eat at the restaurant after 3:00 p.m., however, he would be unable to get the lunch special, and would instead have to pay $10 for the same food.
Not free-riding
Karl never drives at night, and gets no benefit from street lamps at all. Street lamps are nonexcludable and nonrival in consumption. When the community group tries to collect money to build street lamps, Karl does not donate any money.
Not free-riding
Wikipedia is one of the world's largest and most popular public goods. Students around the world are able to access archives of information for homework, general knowledge, and random wasting of time on the internet. However, Wikipedia is not free to operate, as it requires money to pay its staff and maintain its servers. Free riding is one of the biggest issues for Wikipedia, as millions of people use it daily without incurring any of the costs. Assuming Wikipedia thinks they have too many free riders, which solution would NOT reduce, or offset, the free rider problem?
Wikipedia creates a duplicate website, Wekepedia, with the same content as Wikipedia, but costs $25$25 a year. Wikipedia would remain free to the public.
Private good
a good that is both excludable and rival in consumption.
Common resource
a resource that is nonexcludable and rival in consumption.
Examples of public goods
disease prevention, national defense, scientific research
A market for a private good with no externalities produces an efficient ____________ quantity of goods. A private good is__________ in consumption, and is __________.
efficient; rival; excludable
Artificially scarce goods
excludable but nonrival in consumption. Ex: on-demand movies on Amazon prime
Private goods
goods that are both excludable and rival in consumption. Ex: wheat
Common resources
goods that are rival in consumption but not excludable. Ex: clean water in a river
A market for an artificially scare good, also known as a club good, produces an__________ quantity. A club good is ___________ in consumption, and is __________.
inefficient; nonrival; excludable
A market for a public good produces an__________ quantity. A public good is___________ in consumption and is__________.
inefficient; nonrival; nonexcludable.
A market for a common resource produces an _________quantity. A common resource is __________ in consumption and is __________.
inefficient; rival; nonexcludable.
Rival in consumption
referring to a good, describes the case in which one unit cannot be consumed by more than one person at the same time. Ex: wheat used to make bread at a bakery....only one person consumes bread.
Nonrival in consumption
referring to a good, describes the case in which the same unit can be consumed by more than one person at the same time. Ex: TV shows
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.
Intellectual property piracy, or IPP
the illegal copying, distribution, or use of intellectual property.