ECON10004 Lecture Notes - Lecture 9: Mechanism Design, Externality, Market Failure
27 Jul 2018
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Excludable: consumers can be prevented from using the good. Rivalrous: one consumer"s use diminishes another consumer"s use. Smb (non rivalrous goods) = sum of pmbs of all members of society. Public goods are under-provided in a competitive market compared to the efficient outcome for two reasons: Ignore benefits of good for others in society. All members of society pmb < pmc. Can improve own well-being by making others pay for the good. Government calculates smb and smc decides on the efficient quantity. Government acts as a "collective agent" and finances provision of public good through taxation (e. g. ) Each person pays a share pf the cost, which is their share of the smb. Pmb/smb = share of smb for each person. Share of smb x cost (smc) = $ amount paid per person. Need to decide how to allocate society"s resources. One way to do this is by using markets.
