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Nov 14 2013.docx

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Department
Economics
Course
ECO1104
Professor
David Gray
Semester
Fall

Description
Nov 14 , 2013 ECO 1104 YUJIE YI #7038840 Optimal Provision of a Public Good (FINAL)  For private goods, it is the free market equilibrium  ­ As discussed earlier, the value that consumers place on a given level of output is  clear  For public goods, apply cost­benefit analysis  ­ The production costs are the same as with private goods  ­ The benefit side is problematic due to free riding. We do not really know how much  value people place on eh provision of a given level of output  ­ Optimal provision for the community occurs at the output level where marginal  benefit = marginal cost   Fraught with difficulty and subjectivity in estimating the benefits   In practice, many mixed goods and public goods may be overproduced (MC > MB)  ­ At least 40% of all economic activity in Canada is accounted for by the 3 levels of  government   Some think that’s too much, others think the opposite  Tragedy of the Commons (context of common resources) 1  3   There’s no such thing as free good.   The principle: the commons belong to everybody (equals to the commons belong to  nobody)  ▯paradox: nobody maintains it.  Case o
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