ECON 224- Chapter 11 Public Goods and Common Resources

Common Resources solution

Government should turn common resources into private goods. Help define property rights, unleash market forces.

Public goods are a. efficientlyprovidedbymarketforces. b. underprovided in the absence of government. c. overused in the absence of government. d. a type of natural monopoly.

b. underprovided in the absence of government.

Which of the following is an example of a public good? a. residentialhousing 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. privategoodsandcommonresources c. public goods and club goods d. public goods and common resources

b. private goods and common resources

Tragedy of the Commons

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

Free Rider

A person who receives the benefit of a good but avoids paying for it

Define and give an example of a public good. Can the private market provide this good on its own? Explain

A public good is a good which is non-excludable (you can't keep people from partaking in the benefits of its existence) and non-rival (my partaking in the good does not interfere with yours). Because of external effects, private decisions about consumption and production can lead to an inefficient allocation of resources, and government intervention can potentially raise economic well-being.

Cost-benefit Analysis

A study that compares the cost and benefits to society of providing a public good

What is cost-benefit analysis of public goods? Why is it important? Why is it hard?

C-B analysis is important because you must compare the total benefits to the costs of building and maintaining. It is hard because there is no price with which to judge the value of say example a highway

Common Resources

Goods that are rival in consumption but not excludable

Explain what is meant by a good being "excludable." Explain what is meant by a good being "rival in consumption." Is a slice of pizza excludable? Is it rival in consumption?

Excludable good: People can be prevented from using it. Rival in consumption: gtxone person's use of the good reduces another person's ability to use it. Pizza is a classic example of a pure private good — it is excludable (if you don't pay for the pizza, you don't get a slice) and it is rival (each slice you eat is one fewer I can eat).

Private Goods

Goods that are both excludable and rival in consumption

Club Goods

Goods that are excludable but not rival in consumption

Public Goods

Goods that are neither excludable nor rival in consumption

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

Define and give an example of a common resource. Without government intervention, will people use this good too much or too little? Why?

Water.....Yes they will. When one person uses a common resource, she diminishes other people's enjoyment of it. Because of this externality, common resources tend to be used excessively.

Which categories of goods are excludable? a. privategoodsandclubgoods b. privategoodsandcommonresources c. public goods and club goods d. public goods and common resources

a. private goods and club goods

Common resources are a. efficiently provided by market forces. b. underprovided 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.

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

d. fish in the ocean