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

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Presentation on theme: "AP Economics Mr. Bernstein Module 76: Public Goods January 14, 2014."— Presentation transcript:

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

2 AP Economics Mr. Bernstein Public vs Private Goods Private Goods Excludable - Suppliers can prevent those who dont 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) 2

3 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 3

4 AP Economics Mr. Bernstein Public, Private, Common and Artificially Scarce 4

5 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 5

6 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) 6

7 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 7

8 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 8


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