2 Private Goods and Public Goods Nonrival Private Goods Four Types of GoodsPrivate Goods and Public GoodsNonrival Private GoodsCommon Resources and the Tragedy of the CommonsFor applications, click hereTo Try it! questionsTo Video
4 Armageddon Time? A 2.9 mile asteroid narrowly missed earth in 2004 Who will deflect asteroids like Toutatis if there’s no profit in it? Watch a news clip here
5 Goods can be classified as: Four Types of GoodsGoods can be classified as:Non-excludable: When people who don’t pay cannot be easily prevented from using a goodExample: National defenseNon-rival: When one person’s use of a good does not reduce the ability of another person to use the same goodExample: Digital musicAsteroid deflection is both non-excludable and nonrival.
6 Your Happy Meal: both excludable and rival. Four Types of GoodsExcludable: When people who don’t pay can be easily prevented from using a goodExample: JeansRival: When one person’s use of a good reduces the ability of another person to use the same goodExample: CheeseburgerYour Happy Meal: both excludable and rival.
7 Both I and II are excludable. I is excludable, II is nonexcludable. Characterize each of the following items as excludable or nonexcludable.I. Central Park, New YorkII. Cable televisionBoth I and II are excludable.I is excludable, II is nonexcludable.I is nonexcludable, II is excludable.Both I and II are nonexcludable.To nextTry it!
8 Four Types of Goods Four Types of Goods Excludable Non-excludable RivalPrivate GoodsJeansHamburgersContact LensesCommon ResourcesTuna in the OceanThe EnvironmentPublic RoadsNon-rivalNonrival Private GoodsCable TVWi-FiDigital MusicPublic GoodsAsteroid DeflectionNational DefenseMosquito Control
9 The Chinese language is best characterized as a: private goodnonrival private goodcommon resourcepublic goodTo nextTry it!
10 In your opinion, is a college course generally excludable. (i. e In your opinion, is a college course generally excludable? (i.e. if your class has more students, do you get a worse education on average?)YesNoTo nextTry it!
11 Private Goods and Public Goods Private Goods are excludable and rival.Most goods are private goods.Private goods can be efficiently provided in competitive markets.Because they are excludable, there is a strong incentive to pay for and produce them.Because they are rival, excludability does not lead to inefficiency.The only people excluded from consuming a private good in a competitive market are those who are not willing to pay.
12 Private Goods and Public Goods Public Goods are non-excludable and non-rival.Because they are non-excludable, it is difficult to get people to pay for them voluntarily.Because they are non-rival, production costs do not significantly change with additional users.A classic example.
13 Private Goods and Public Goods A Free Rider enjoys the benefits of a public good without paying a share of the costs.Free riders can disrupt market efficiency.With enough of free riders, public goods will be underprovided by the market.Is he working on your group project? Or is he on Facebook, free-riding on your effort?
14 Private Goods and Public Goods Failure to provide public goods at the optimal level can create substantial costs.The benefits of public goods provide a strong argument for taxation and government provision.By taxing everyone and producing the public good, government can make people better off.Without government-provided highways, how would you get to Columbus?
15 Private Goods and Public Goods Just because everyone can be made better off with taxation and government provision does not mean that everyone will be made better off.Some people may want more of the public good while some may want less. Some people may want none.
16 Private Goods and Public Goods A Forced Rider is someone who pays a share of the costs of a public good (through taxation) but who does not enjoy the benefits.
17 It has made those goods nonexcludable. The rise of the Internet and file sharing has turned media such as movies and music into public goods. How?It has made those goods nonexcludable.It has made those goods nonrival.It has made those goods excludable.It has made those goods rival.To nextTry it!
18 Private Goods and Public Goods If the government provides the public good, how much should it produce?Ideally, the amount that maximizes total surplusIn practice? This could be difficult.The total benefit of a public good is the sum of the benefits to each individual.How will the government know how much each person values the good?Voting and other democratic processes can help to produce optimal amounts of public goods.
19 Private Goods and Public Goods Nonrival Private Goods are goods that are excludable but non-rival.Markets can provide these goods but do so at an inefficient level.Entrepreneurs sometimes find clever ways to profit from nonrival private goods, even without exclusion.E.g. advertising on “free” T.V. stationsWi-fi: excludable and essentially non-rival
20 Common Resources and the Tragedy of the Commons Common Resources are goods that are non-excludable but rival.Consumers cannot be excluded from consuming these goodsbut when anyone consumes it, there is one less for everyone else.There is a strong incentive to consume these resources before others.
21 Common Resources and the Tragedy of the Commons The Tragedy of the Commons is the tendency for any good which is unowned and nonexcludable to be overused and undermaintained.Example: FishSince fish are not owned, it is difficult to prevent anyone from fishing.When one person catches a fish, there are fewer fish available to everyone else.Each person has the incentive to fish before others.
22 The first Thanksgiving in America: A celebration of private property? POSTED BY David Youngberg ON November 27, 2009 AT 12:09 AM Thanksgiving is a celebration of private property. It’s one of those little known history lessons and a great one to tell your students during the holidays, especially if you’re teaching tragedy of the commons.In the early years on Cape Cod, the pilgrims established communal ownership for their farms. Thought to be the best way to organize the settlers so far from the Virginia Company’s headquarters (the fear being they would eschew their company obligations in favor of their own land if they became private owners), all land was to be held in commune. Unsurprisingly, by November of 1620 half of the 101 settlers were dead. The governor of the colony, William Bradford, wrote things were so bad,many sold away their clothes and bed covers; others (so base were they) became servants to the Indians, and would cut them wood and fetch them water for a capful of corn; others fell to plain stealing, both night and day, from the Indians… (Of Plymouth Plantation p116)The Native Americans had little respect for the pilgrims, who couldn’t even grow corn, a most basic of crop, and resorted to stealing from them to get back. But then, Bradford changed the rules, granting each family a scrap of land from they could decide what to grow and keep what they sowed.This had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability; whom to have compelled would have been thought great tyranny and oppression. (Ibid. p120)And so the pilgrims produced a bumper crop that year, not only giving them the food needed to survive the winter and producing a profit for the Company, but also earning the respect of the natives and laying the foundation for the first Thanksgiving.(From How Capitalism Saved America and John Stossel.)The first Thanksgiving in America: A celebration of private property?Communal property resulted in half the settlers starving to death in 1620.Governor Bradford instituted private property and the Tragedy of the Commons was reversed- something to celebrate!
23 Common Resources and the Tragedy of the Commons Southern Bluefin Tuna catchSource: Commission for the Conservation of Southern Bluefin TunaThe Difference is OwnershipChickensOwned, not endangered.“Chicken of the Sea”unowned, endangered.
24 Is the “King of Sushi” in trouble Is the “King of Sushi” in trouble? Click below to watch a 60 minutes clip on changes in the market for the Southern Bluefin Tuna. (12:56 minutes)Back to
25 Happy Solutions to the Tragedy of the Commons (ITQs) are like Tradable Pollution Permits-but for catching fishWhy are these fish thriving? New Zealand issues Individual Transferable Quotas (ITQs) for fish
26 Tragedy of the Commons strikes again? Once there were trees on Easter Island.
27 Toilet paper is a rival good because: there is a lot of competition in the toilet paper market.it is a substitute good for a bidet.if one person uses several sheets of toilet paper it reduces the ability of another person to use the same sheets.it is made from natural resources.Back to