Presentation on theme: "Unit 5 – Market Failure and the Role of Government Public Goods."— Presentation transcript:
Unit 5 – Market Failure and the Role of Government Public Goods
What are the characteristics of Public Goods? 1.Nonrivalry: one person’s consumption of a public good does not prevent someone else from consuming it. 2. Nonexludability: Once a public good has been provided, the producer cannot prevent people that have not paid for it from receiving the benefits. This leads to the free rider problem. Examples? Note: There is a positive externality associated with public goods.
Deriving the Demand Curve for Public Goods. 1. To find the demand for a public good, add up all individuals’ marginal benefit (that is, the price they are willing to pay) at any given quantity.
Now suppose that Danny is the one who decides to puts on fireworks displays every summer. Here is the marginal cost data for fireworks displays: To your graph of public demand, add this marginal cost data and Danny’s private demand curve. Quantity1234 Marginal Cost $4.00$7.50$11.00$15.50
Demand Lily+Natalie+Danny = Demand Public MPC = MSC D Danny QDQD Q EF
2 86 4 Quantity (acres of land in park) Price (1000s of $) 40 30 20 10 0 D Public MPC=MSC D Aubrey