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ACDC Leadership 2019

Topic-

Private and Public Goods

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Types of Goods

  • Excludability: Excludability refers to the property of a good whereby a person can be prevented from using it.

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  • Rivalry: Rivalry refers to the property of a good whereby one person’s use diminishes other people’s use.

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Four Types of Goods

Copyright © 2004 South-Western

Rival?

Yes

Yes

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Ice-cream cones

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Clothing

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Congested toll roads

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Streaming Music

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Computer Software

No

Private Goods

Artificially Scarce Goods

No

Excludable?

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Fish in the ocean

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The environment

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Congested nontoll roads

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Tornado siren

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National defense

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Uncongested nontoll roads

Common Resources

Public Goods

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  • A free-rider is a person who receives the benefit of a good but avoids paying for it.

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  • Since people cannot be excluded from enjoying the benefits of a public good, individuals may withhold paying for the good hoping that others will pay for it.

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  • The free-rider problem prevents private markets from supplying public goods.

The Free Rider Problem

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5

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Underproduction of Public Goods

# of Parks

Adam is willing to pay

Jill is willing to pay

Society’s Demand for Parks

Marginal Cost

1

$4

$5

$9

$5

2

$3

$4

$7

$5

3

$2

$3

$5

$5

4

$1

$2

$3

$5

5

$0

$1

$1

$5

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Each additional park costs $5.

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  1. How many parks SHOULD be made?

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  • How many parks WILL be made?

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ACDC Leadership 2018

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Government provision of public goods�

    • The government can decide to provide the public good if the total benefits exceed the costs.

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    • The government can make everyone better off by providing the public good and paying for it with tax revenue.

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Common Resources

  • Common resources, like public goods, are not excludable. They are available free of charge to anyone who wishes to use them.

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  • Common resources are rival goods because one person’s use of the common resource reduces other people’s use.

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Tragedy of the Commons

The Tragedy of the Commons is a parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.

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    • Common resources tend to be used excessively when individuals are not charged for their usage.

    • This is similar to a negative externality.

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P

Q

D=MSB

S=MPC

QFree Market

10

Market for Fish

MSC

QOptimal

DWL

Overallocation

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ACDC Leadership 2019

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SOLUTION: Property Rights

  • The market fails to allocate resources efficiently when property rights are not well-established (i.e. some item of value does not have an owner with the legal authority to control it).

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  • When the absence of property rights causes a market failure, the government can potentially solve the problem by selling licenses, forcing the producers to pay for externality/social cost.

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Annotations

Develop a compelling question related to one of the topics we discussed in class.

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Writing an annotation

. Annotation should be 150-250 words in length. It should address the following:

  • Citation (APA format)
  • Supporting question that this research addresses
  • Summary of the article
    • Methodology used
    • Purpose of the research
    • Major findings/conclusions
  • Evaluation of source
    • How does the source support the research question?
    • How does this source support/add to and/or contradict other sources in the bibliography?
    • Which perspective/s of psychology does this provide?

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Let’s take a look a sample on the rubric