ECON CHAPTER 19

social norms

-Both free rider and tragedy of the commons are problems of trade-offs, people are able to enjoy the benefits of something without paying the corresponding costs -Strong social norms can balance trade-offs by imposing costs of social disapproval or guilt -Some "design principles" make informal, community based solutions to public goods and common resource problems more effective- clear distinctions between who is and is not allowed to access the resource, participation of resource users in setting the rules for use, ability of users to monitor one another

who pays for government provision?

-Determining who will pay depends in part on how easy it is to exclude people who don't pay -Sometimes the government can have the people who actually use them pay for it- like tolls -Other cases like sewer systems, and police and fire protection is more costly to try to exclude non users than it is worth. These services are usually funded by general tax.

government provision and marginal benefit

-If the government is supplying a public good, such as road maintenance, the efficient quantity is the one at which the marginal social benefit equals the cost -Governments often guess what the marginal social benefit of additional unit will be

government provision

-To combat the undersupply of public goods, the more typical regulatory solution for the government is to provide directly ex. transportation systems, education, research, parks, safety

bans and quotas

-making something illegal can change the trade-off, by creating costs for breaking the ban or exceeding the quota -if the punishment is not severe, or the likelihood of getting caught is low, the cost may not be high enough to change the trade-off. fail in situations when authority cannot monitor this -In countries that have the resources to enforce them, bans or quotas that limit the use of common resources are straightforward public-policy approaches to solving the problem of overuse

tradable allowances

A cap is set on the total quantity of the resource that can be used, and shares of that total are allocated to individuals or firms. After initial allocation, people can buy or sell their shares. Trading assures that resource is allocated to those with the highest willingness to pay, while setting limit to overall quantity to an efficient level. The people who own shares now have property rights

free-rider and externalities

Free riders enjoy positive externalities from others' choices to pay. When positive externalities exist, the equilibrium quantity of the good or service is less than the level that would maximize total surplus

government's power

Government bodies have the power to impose limits on how much of a resource is consumed or to make up for the inadequate supply, when individuals and informal associations do not

individuals and the tragedy of the commons

Individually rational- Demanders will demand more than would if they had to pay Collectively inefficient- using a common resource imposes a negative externality on others -If individuals could be forced to consider external costs on their activities, the demand curve would shift downward and the equilibrium quantity would go down to efficient level

problem with quotas

Quotas can control total quantity, but don't necessarily allocate supplies in the most efficient way. They can result in undesired side effects- like damaging extraction methods or rushes to get as much of a resource as possible before hitting the quota

excludable

a characteristic of a good or service that allows owners to prevent its use by people who have not paid for it

private good

a good that is both excludable and rival

free-rider problem

a problem that occurs when the nonexcludability of a public good leads to undersupply -look at examples in notes -triggered by nonexcludability

why do excludable goods matter?

allows owners to set an enforceable price on a good. if you can't prevent people from consuming something, they have little reason to pay for using it

artificially scarce goods

are excludable, but not rival ex. mp3 player, subscription only websites

common resources

are not excludable but rival ex. forest, fisheries, wildlife

private goods

both excludable and rival. They are usually allocated efficiently by competitive markets. ex. plane tickets, pizza, minivan

how can free-rider problem be solved?

by making the good or service more excludable (ex. Paying per use like a toilet) to government making somebody responsible for the provision of a certain quantity of good or service

public goods

opposite of private goods; they are neither excludable or rival ex. open software, traffic lights, national defense

examples of non excludable goods

street lights. Once they are put up, everyone who comes through gets the benefit, regardless of who paid for it. -it is possible to make bridges, tunnels, and highways excludable by setting up toll booths

non rival good

streetlights, two different people can use it at the same time and after each other. Another one is a song on pithe radio, it can't be used up. In general, knowledge and technology are nonrival because everyone can take advantage of it. -matters in degree- roads usually aren't, but if there is a lot of traffic, new cars coming on will slow it down

rival in consumption

the characteristic of a good for which one person's consumption prevents or decreases others' ability to consumer it

tragedy of the commons

the depletion of a common resource due to individually rational but collectively inefficient overconsumption -combination or rivalry and nonexcludability

property rights

turning common resources into private goods ex. breaking town common into private lots, farmers owning wild animals in their land

example of rival good

when a fish is caught, it cannot be caught again