ECON 1B03 Chapter Notes - Chapter 1: Excludability, Free Rider Problem, Ice Cream

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ECON 1B03 Full Course Notes
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ECON 1B03 Full Course Notes
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Problem with the market for free goods is that the market forces-prices=which normally allocate resources are absent. Without prices, the market cant guarantee that the good is produced and consumed in the right amount. Excludability: you can prevent someone from using or enjoying the good. Example: you cant have a candy bar unless someone gives you one or sells you one. Rivalry: if one person is using or enjoying the good, the ability of someone else to use or enjoy that good is diminished. Example: if im eating a candy bar you cant eat the same one. Divide goods into four categories: private goods: both excludable and rival. Example: a doughnut: public good: neither excludable nor rival. Example: a lighthouse: common resources: rival but not excludable. Example: fish in the ocean: club goods(formerly natural monopoly goods): excludable but not rival. Free rider: a person who receives the benefit of a good but avoids paying for it.

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