Textbook Notes (363,006)
Canada (158,140)
Economics (727)
ECON 1B03 (302)
Chapter 11

Chapter 11

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McMaster University
Usman Hannan

CHAPTER 11: PUBLIC GOODS AND COMMON RESOURCES The Different Kinds of Goods There are 2 characteristics: 1. excludability: a person can be prevented from using it 2. rival in consumption: one person’s use diminishes other people’s use Categories: 1. Private Goods - excludable and rival in consumption (i.e. an ice cream cone; I can just not give it to you, or if I eat it you cannot eat it as well. Other examples include clothing, congested toll roads) 2. Public Goods – neither excludable or rival in consumption (i.e. you cannot prevent me from using a park, but if I use the park it does not mean that you no longer can. Other examples include national defense, uncongested non-toll roads, tornado siren) 3. Common Resources – rival in consumption (i.e. if I catch a fish from the ocean there is one less fish for you to catch, but you cannot prevent me from catching it as the ocean is so vast. Other examples include the environment, congested non-toll roads) 4. Natural Monopoly – excludable (i.e. if the firefighters do not want to come save your house from burning down they do not have to, but there are enough supplies for them to save multiple houses. Other examples include cable TV, uncongested toll roads) Public Goods The Free-Rider Problem - free rider: a person who receives the benefit of a good but avoids paying for it (i.e. I can watch fireworks from my house instead of paying to watch them) - may be socially desirable but not privately profitable - prevents private market from supplying these goods, therefore government can by using tax revenue Some Important Public Goods National Defence - federal government supplies this good Basic Research - to
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