Chapter 11 - Examining Public Goods

Private goods are also rival goods

because only one person at a time can use them

Private goods are also considered rival goods

because only one person at a time can use them.

A free rider can enjoy the benefits of a public good

because public goods are nonexcludable.

Public goods are distinguished from private goods, or those that benefit only the individual,

by the qualities of excludability and rivalry.

the marginal benefits are available to everyone because

public good is nonexcludable.

Sometimes private goods also benefit the public

which are called mixed goods, and the include education and health care

A resource that can be used only once, but no one can be prevented from using what is available.

Common Resource

If the enjoyment of a good or service can be restricted to those who pay for it, then only those who pay may be allowed to consume them.

Excludable

A cost or a benefit that arises from production and that falls on someone other than the producer; or a cost or benefit that arises from consumption and that falls on someone other than the consumer.

Externality

A cost or benefit that arises from consumption and that falls on someone other than the consumer

Externality

The benefit from an additional unit of a good or service that people other than the consumer of the good or service enjoy.

Marginal external benefit (MEB)

The benefit from an additional unit of a good or service that the consumer of that good or service receives.

Marginal private benefit (MB)

The marginal benefit enjoyed by the consumer of a good or service and by everyone else who benefits from it. It is the sum of marginal private benefit and marginal external benefit.

Marginal social benefit (MSB)

A private good, the production or consumption of which creates an externality.

Mixed Good

A private good with a consumption or production that creates a cost or benefit that arises from production

Mixed good

The marginal economic benefit of a public good is

NOT equal to the point where market demand equals market supply of the good.

Arises because one firm can meet the entire market demand at a lower average total cost than two or more firms could

Natural Monopoly

If one firm can meet the entire market demand at a lower average total cost than two or more firms could, this is created

Natural monopoly

A good, service, if it is impossible (or extremely costly) to prevent someone from enjoying its benefits.

Nonexcludable

A good, service, or resource is nonrival if its use by one person does not decrease the quantity available to someone else.

Nonrival

The tendency for competitors to make themselves identical to appeal to the maximum number of clients or voters.

Principle of minimum differentiation

A good or service that can be consumed by only one person at a time and only by the person who has bought it or owns it.

Private Good

A good or service that can be consumed simultaneously by everyone and from which no one can be excluded.

Public Good

A good, service, or resource is rival if its use by one person decreases the quantity available to someone else.

Rival

A payment by the government to a producer to cover part of the cost of production.

Subsidy

A token that the government provides to households, which they can use to buy specified goods or services.

Voucher

Private goods that also benefit the public, or external benefits,

are called mixed goods.

Education and health care

are mixed goods.

The difference between private goods and public goods

can be explained by excludability and rivalry

When the marginal benefits of public goods differ between groups of voters,

compromise is required to get political approval.

Marginal private benefit (the benefits that the individual gains) plus marginal external benefit (the benefits that accrue for the public)

equals what is called the marginal social benefit

An external benefit that is created by the production of private goods

is a positive production externality.

When consumption of a private good creates costs to others,

it is a negative consumption externality.

If an externality is a cost and is caused by the production of a good,

it is a negative production externality.

The opportunity cost that arises from a one-unit increase in an activity.

marginal cost

Public goods are

neither excludable nor rival

Public goods are

nonrival, such as programs on network television in which any number of people can watch at any time.

Public goods are available to everyone

not just the people who have contributed to them

The demand curve for private goods is determined by the sum of individual demands,

not the sum of marginal benefits, as is the case for public goods.

Private goods are excludable;

only those who choose to receive them can get them

The efficient quantity of the public good is that

quantity where diminishing marginal benefits are equal to increasing marginal costs

Individual voters and their elected representatives may find it is not worth their time to acquire information

rational ignorance

The marginal cost of producing a good is

the change in total cost that results from a one-unit increase in output.

When marginal benefit is less than marginal cost,

the economic value of the project is diminished.

When marginal benefit exceeds marginal cost,

the project creates surplus value.

If the beneficiary of a public good or service faces the marginal cost of its provision,

the public good is underproduced.

The benefits of public goods are different than those of private goods because

their benefits are nonrival and nonexcludable.

Private goods are excludable because only those who choose to receive

them can get them, such as ticketholders to a theater performance.

if the creation or consumption of a private good creates benefits for others for which they do not pay,

then it is a positive consumption externality

If the consumption or enjoyment of a good, service, or resource by one person decreases the quantity available to someone else,

then we say it is rival

The marginal cost of something is

what you must give up to get one additional unit of it.

The benefits of mixed goods are expressed as marginal social benefit,

which is the sum of marginal private benefit and marginal external benefit.

Mixed goods are private goods

with attributes that benefit the public at large, or external benefits.