# Mr. Bernstein Module 76: Public Goods January 14, 2014

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Mr. Bernstein Module 76: Public Goods January 14, 2014
AP Economics Mr. Bernstein Module 76: Public Goods January 14, 2014

AP Economics Mr. Bernstein
Public vs Private Goods Private Goods Excludable - Suppliers can prevent those who don’t pay from consuming Rival – Cannot be consumed by more than one person at the same time Public Goods Non-excludable and non-rival Example of Public Good: Fire Department (non-rival, benefits neighbors as well as burning house)

AP Economics Mr. Bernstein
Common and Artificially Scarce Resources Common Resources Non-excludable but rival ie fish in the ocean…anyone can catch them but only one person at a time can consume Artificially Scare Resources Excludable but non-rival Pay-per-view movies

AP Economics Mr. Bernstein
Public, Private, Common and Artificially Scarce

AP Economics Mr. Bernstein
Markets Only Provide Private Goods Efficiently Freeloader problem Efficient level of Public Good is where MSC = MSB Variation of MC = MR MSB is sum of individual MSB curves

AP Economics Mr. Bernstein
Common Resources Example: Well water Nonexcludable, rival “Tragedy of Commons” (1968) User imposes very small cost to society so individual will overuse Solutions include tax or regulate users, system of tradable licenses, or otherwise making resource excludable and assigning rights (ie logging Public Lands)

AP Economics Mr. Bernstein
Common Resources S is sum of individual supply curves Does not include cost imposed on others As a result, MSC lies above S Equilibrium is higher than optimal (MSC=D) point

AP Economics Mr. Bernstein
Efficient Level of Artificially Scarce Goods Example: Pay Per View (On Demand) Excludable, nonrival MC ~ = zero So the efficient quantity is where Demand curve intersects MC = 0 line… But there is no profit there, so firm excludes some customers by charging \$5 to view and quantity ordered is less than efficient quantity