EC120 Chapter Notes - Chapter 11: Private Good, Overgrazing, Market Failure
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EC120 Full Course Notes
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When goods have no prices, the market forces that normally allocate resources are absent. The private market may fail to provide the socially ef cient quantity of such goods. Excludability: the property of a good whereby a person can be prevented from using it. Not excludable: fm radio signals, national defence. Rival in consumption: the property of a good whereby one person"s use diminishes other people"s use. Not rival: an mp3 le of kanye west"s latest single. Chapter 11 focuses on public goods and common resources. Externalities arise for both because something of value has no price attached to it. Private decisions about consumption and production can lead to an inef cient outcome. Public policy can potentially raise economic well-being. Public goods are not excludable and not rival in consumption. Public goods are dif cult for private markets to provide because of the free-rider problem.
