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18 CHAPTER D YNAMIC P OWER P OINT ™ S LIDES BY S OLINA L INDAHL Public Goods and the Tragedy of the Commons.

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Presentation on theme: "18 CHAPTER D YNAMIC P OWER P OINT ™ S LIDES BY S OLINA L INDAHL Public Goods and the Tragedy of the Commons."— Presentation transcript:

1 18 CHAPTER D YNAMIC P OWER P OINT ™ S LIDES BY S OLINA L INDAHL Public Goods and the Tragedy of the Commons

2 CHAPTER OUTLINE Four Types of Goods Private Goods and Public Goods Nonrival Private Goods Common Resources and the Tragedy of the Commons For applications, click herehere To Video To Video

3 Some good blogs and other sites to get the juices flowing: Food for Thought….

4 SEE THE INVISIBLE HAND Who will deflect asteroids like Toutatis if there’s no profit in it? Watch a news clip herehere Armageddon Time? A 2.9 mile asteroid narrowly missed earth in 2004

5 B ACK TO Four Types of Goods Goods can be classified as: Non-excludable: Non-excludable: When people who don’t pay cannot be easily prevented from using a good Example: National defense Non-rival: Non-rival: When one person’s use of a good does not reduce the ability of another person to use the same good Example: Digital music Asteroid deflection is both non-excludable and nonrival.

6 B ACK TO Four Types of Goods Excludable: Excludable: When people who don’t pay can be easily prevented from using a good Example: Jeans Rival: Rival: When one person’s use of a good reduces the ability of another person to use the same good Example: Cheeseburger Your Happy Meal: both excludable and rival.

7 Characterize each of the following items as excludable or nonexcludable. I. Central Park, New York II. Cable television a)Both I and II are excludable. b)I is excludable, II is nonexcludable. c)I is nonexcludable, II is excludable. d)Both I and II are nonexcludable.

8 B ACK TO Four Types of Goods ExcludableNon-excludable RivalPrivate Goods Jeans Hamburgers Contact Lenses Common Resources Tuna in the Ocean The Environment Public Roads Non-rivalNonrival Private Goods Cable TV Wi-Fi Digital Music Public Goods Asteroid Deflection National Defense Mosquito Control

9 The Chinese language is best characterized as a: a)private good b)nonrival private good c)common resource d)public good

10 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?) a)Yes b)No

11 B ACK TO Private Goods and Public Goods 1. Private Goods 1. 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 B ACK TO Private Goods and Public Goods 2.Public Goods 2.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 B ACK TO Private Goods and Public Goods Free Rider 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 B ACK TO 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 B ACK TO 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 B ACK TO Private Goods and Public Goods Forced Rider 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 The rise of the Internet and file sharing has turned media such as movies and music into public goods. How? a)It has made those goods nonexcludable. b)It has made those goods nonrival. c)It has made those goods excludable. d)It has made those goods rival.

18 B ACK TO Private Goods and Public Goods If the government provides the public good, how much should it produce? Ideally, the amount that maximizes total surplus In 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 B ACK TO Private Goods and Public Goods 3. Nonrival Private Goods 3. 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. stations Wi-fi: excludable and essentially non-rival

20 B ACK TO Common Resources and the Tragedy of the Commons 4.Common Resources 4.Common Resources are goods that are non-excludable but rival. Consumers cannot be excluded from consuming these goods but when anyone consumes it, there is one less for everyone else. There is a strong incentive to consume these resources before others.

21 B ACK TO Common Resources and the Tragedy of the Commons 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: Fish  Since 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 SEE THE INVISIBLE HAND The first Thanksgiving in America: A celebration of private property? Communal property resulted in half the settlers starving to death in Governor Bradford instituted private property and the Tragedy of the Commons was reversed- something to celebrate!

23 B ACK TO “Chicken of the Sea” unowned, endangered. Common Resources and the Tragedy of the Commons The Difference is Ownership Chickens Owned, not endangered. Southern Bluefin Tuna catch Source: Commission for the Conservation of Southern Bluefin Tuna

24 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) B ACK TO

25 Happy Solutions to the Tragedy of the Commons Why are these fish thriving? New Zealand issues Individual Transferable Quotas (ITQs) for fish (ITQs) are like Tradable Pollution Permits- but for catching fish

26 SEE THE INVISIBLE HAND Tragedy of the Commons strikes again? Once there were trees on Easter Island.

27 Toilet paper is a rival good because: a)there is a lot of competition in the toilet paper market. b)it is a substitute good for a bidet. c)if one person uses several sheets of toilet paper it reduces the ability of another person to use the same sheets. d)it is made from natural resources. B ACK TO


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