ECON 1 Lecture Notes - Lecture 26: Free Rider Problem, Public Good, Private Good
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Excludable -- exclude other persons from consuming. Not all goods are excludable & rival. Pay-per-view tv -- excludable, but not rival. Broadcast tv -- neither excludable or rival. Not excludable -- can"t charge for consumption. Not rival -- shouldn"t charge for consumption. : national defense, police and fire protection, basic research. 3 residents --> hire scientists for basic research. Marginal cost of hiring a scientist: ,000. Maximize social profits --> hire 2 scientists (marginal cost: ,000) Who do i have to pay --> people want free ride. A tax of ,000 per resident per scientist. 2 (the majority) prefer 2 scientists to 0, 1, or 3. Sum of mb > sum of mc. Median mb = average mb --> voting criteria = efficiency criteria. Excludable: supplier can prevent people who do not pay from consuming. Rival in consumption: same unit of good cannot be consumed by more than one person at the same time.
