ECON 155 Lecture Notes - Lecture 12: Public Good, Final Good, Indifference Curve
Chapter 8 February , 8
• The fedeal goeet has poe to peept hat states at to do (ie: people i the south did’t like this
because some property owners had slaves)
• The problem: the social benefit is compared with the cost of the extra unit; when the 2 are equal, there is a social
equilibrium
o Mischaracterizes citizens as consumers
o Example: police protection. Assume that citizens are consumers of police protection. We know that as
consumers advance up the income hierarchy, their disposable income and range of consumer choices grow.
Some consumers cannot afford to employ any police protection. The issue is that the model treats police as
an instance of private consumer choice, meaning that the cost of police protection will fall as my income
rises.
o Is the police force a public good or private consumer good?
• Public good: everyone gets an equal amount of a good or service
o Cosuptio of the good is shaed aog osuers (ie: police)
o Gives rise to problems because the police force is not shared equally. This makes the good a private
consumer good (ie: some people flee the police in fear that they will be shot)
o It does’t atte hethe soe osues euie oe o less of the good, according the model
o Aristotle: it is not the job of military leadership and medicine to produce goods, but victory and health
o We sujet puli goods to the piate eoo, eaig e o’t ahiee ou puli goals
o Consumers discriminate among people and goods – does that mean that the publics intervene in private
consumer choices?
▪ In Capitalism and Freedom (Milton Friedman), the assumption is that if an individual is willing to pay
a higher price, then it is not considered discrimination
o We ight agee that e fao puli goods that dietl affets us (ie: a eldel peso o’t at to pa
for education)
• Democracy
o We can intervene to seek to restore equilibrium by eliminating or supplementing the amount of public
goods
o Doing so leads to further distortions or increased costs
o The consideration of public goods is through the lens of a private marketplace
o Democracy gives rise to a binary with almost half of the community has its choice ignored
o The private marketplace is more efficient than the ballet box
• Migration
o Another option is migration
o Assuig thee ae o estitios to spatial loatio, ou a ote ith ou feet
▪ In this case, municipalities would compete for citizens
o Model suggests that public goods are spatially limited to cities whose recognition of public matches the
individual (ie: if you are gay from South Carolina, you can always move to SF or Boston)
• Property value maximization
o Governing authorities can just calibrate the value of each property to suit the indifference curve of any given
ouit (ie: if ou ouit does’t adeuatel poide ou esoues, the ou a oe to aothe
region that does)
• The odel falls apat eause puli goods do’t lead to shaig, ut elusiit
o This means that the municipalities will compete over good health, clean water and air, safety, and race (ie:
South Carolina will do fine if they discriminate – they will just attract people who discriminate)
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Assume that citizens are consumers of police protection. We know that as consumers advance up the income hierarchy, their disposable income and range of consumer choices grow. Some consumers cannot afford to employ any police protection. The issue is that the model treats police as an instance of private consumer choice, meaning that the cost of police protection will fall as my income rises. This makes the good a private consumer good (ie: some people flee the police in fear that they will be shot)
