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Canada (158,426)
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ECON 1B03 (302)
Chapter 11

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McMaster University
Hannah Holmes

Chapter 11 Public Goods and C PUBLIC GOODS AND COMMON 11 RESOURCES Problems and Applications 1. a. The externalities associated with public goods are positive. Since the benefits from the public good received by one person don't reduce the benefits received by anyone else, the social value of public goods is substantially greater than the private value. Examples include a tornado siren, national defence, uncongested non-toll roads, and uncongested parks. Since public goods aren't excludable, the free-market quantity is zero, so it is less than the efficient quantity. b. The externalities associated with common resources are generally negative. Since common resources are rival but not excludable (so not priced) the use of the common resources by one person reduces the amount available for others. Since common resources are not priced, people tend to overuse themtheir private cost of using the resources is less than the social cost. Examples include fish in the ocean, the environment, congested non-toll roads, the Town Commons, and congested parks. 2. a. (1) Police protection is a natural monopoly, since it is excludable (the police may ignore some neighborhoods) and not rival (unless the police force is overworked, they're available whenever a crime arises). You could make an argument that police protection is rival, if the police are too busy to respond to all crimes, so that one person's use of the police reduces the amount available for others; in that case, police protection is a private good. (2) Snow plowing is most likely a common resource. Once a street is plowed, it isn't excludable. But it is rival, especially right after a big snowfall, since plowing one street means not plowing another street. (3) Education is a private good (with a positive externality). It is excludable, since someone who doesn't pay can be prevented from taking classes. It is rival, since the presence of an additional student in a class reduces the benefits to others. (4) Rural roads are public goods. They aren't excludable and they aren't rival since they're uncongested. (5) City streets are common resources when congested. They aren't excludable, since anyone can drive on them. But they are rival, since congestion means every additional driver slows down the progress of other drivers. When they aren't congested, city streets are public goods, since they're no longer rival. b. The government may provide goods that aren't public goods, such as education, because of the externalities associated with them. 211 212 ✦ Chapter 11/Public Goods and Common Resources 3. a. Charlie is a free rider. b. The government could solve the problem by sponsoring the show and paying for it with tax revenue collected from everyone. c. The private market could also solve the problem by making people watch commercials that are incorporated into the program. The existence of cable TV makes the good excludable, so it would no longer be a public good. Chapter 11/Public Goods and Common Resources ✦ 213 4. a. Since knowledge is a public good, the benefits of basic scientific research are available to many people. The private firm doesn't take this into account when choosing how much research to undertake; it only takes into account what it will earn. b. Canada has tried to give private firms incentives to provide basic research by subsidizing it through organizations like the National Sciences and Engineering Research Council of Canada (NSERCC) and the Social Sciences and Humanities Research Council of Canada (SSHRCC). c. If it's basic research that adds to knowledge, it isn't excludable at all, unless people in other countries can be prevented somehow from sharing that knowledge. So perhaps Canadian firms get a slight advantage because they hear about technologica
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