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Lecture 15

Economics 1021A/B Lecture Notes - Lecture 15: Natural Monopoly, Economic Equilibrium, Free Rider Problem


Department
Economics
Course Code
ECON 1021A/B
Professor
Michael Parkin
Lecture
15

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Chapter 17: Public goods and common resources
Every good is either excludable or nonexcludable and rival or nonrival
oExcludable
Only people who pay for it can enjoy it
oNonexcludable
Anytime when it’s impossible to prevent someone from enjoying a good
or service
oRival
One person uses the good, someone else can’t use it
oNonrival
If anyone can benefit from the good and in doing so it doesn’t prevent
anyone else from benefitting from it
Private good
oRival and excludable
Coffee
oFree rider problem
People who enjoy goods or services without paying for it
No incentive to pay
Public good
oNonrival and nonexcludable
National defence – everyone benefits from it
Common resource
oRival and nonexcludable
Someone else using it, prevents another from benefit
Hard to exclude people
Fishing
oLower marginal cost = higher profit, buy other quotas
oIf you have a high marginal cost, sell the quota
oEquilibrium price ends up being the average profit
o
Natural monopoly good
Cable tv
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