ECON 102 Chapter Notes - Chapter 26: Free Rider Problem

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Published on 20 Jan 2017
School
University of Illinois
Department
Economics
Course
ECON 102
Professor
Econ 102
Prelecture 26: Public Goods
Not all goods are the same
Exclusive- possible to prevent/exclude someone to from using it unless they pay
Rival in consumption once someone consumes the good, it can be no long consumed
by someone else
Fireworks display nonexclusive (don’t have to pay), nonrival (can view them from their
own lawn and watch them at the same time without diminishing the enjoyment of others)
Rival in consumption (others can
not consume good at same time,
your consumption affects
another’s consumption )
Non rival in consumption (others
can consume good at same time,
your consumption does not
affect another’s consumption)
Excludable (have to
pay to use it)
Private
Artificially scarce
Ex: streaming services, satellite
radio, concert you have to pay
for
Nonexcludable (don’t
have to pay to use it)
Common resources
Ex:# of fish available to catch in
lake, clean air
Public goods
Ex: fireworks display, snow
plowing, police, firefighters
Public goods and the free rider problem
Free markets have trouble distributing public goods
Free rider problem (people enjoying the good without paying) is common among public
goods
private firms do not provide public goods because they have no incentive to do so
because consumers are unwilling to pay
Which of the following is the best example of a free rider problem common among public goods?
a) A student sneaks onto the city bus without paying the fare.
b) A friend asks to ride on the handle bars of your bike to school.
c) Some students choose not to recycle their soda bottles after class, instead leaving them in the
classroom.
d) Your roommate studies all night and earns an A on an exam.
Great job! Recycling and maintaining a clean classroom benefits everyone, but yet not everyone contributes to this
goal.
How many public goods to provide (using the example of snowplowing)
government must provides public goods through levying taxes to pay for the costs
government must decide which public goods to provide and how much to provide
as long as enough consumers benefit from the service, government have incentive to
provide for the service by determining total benefit achieved from each day of
snowplowing
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Document Summary

Exclusive- possible to prevent/exclude someone to from using it unless they pay. Rival in consumption once someone consumes the good, it can be no long consumed by someone else. Rival in consumption (others can not consume good at same time, your consumption affects another"s consumption ) Fireworks display nonexclusive (don"t have to pay), nonrival (can view them from their own lawn and watch them at the same time without diminishing the enjoyment of others) Non rival in consumption (others can consume good at same time, your consumption does not affect another"s consumption) Ex: streaming services, satellite radio, concert you have to pay for. Nonexcludable (don"t have to pay to use it) Ex:# of fish available to catch in lake, clean air. Free markets have trouble distributing public goods. Free rider problem (people enjoying the good without paying) is common among public goods.

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