1. Chapter 11: Problems and Applications #1-4

2. 1. Public Goods and Common Resources involve Externalities
A. Externalities associated with public goods positive or negative?
Positive
Examples:

3. 1a. Is free market Q of public goods > or < efficient Q

4. 1b. Are externalities with common resources positive or negative
Private value exceeds social value

5. 1b. Examples
Fish in ocean, environment, congested non-toll roads, congested parks
Is Free market use of common resources > or < efficient use?
Free market use > efficient use

6. 2. Categorize Police protection
Natural monopoly – can be excludable and non rival (if not busy)
Can be private – excludable and and rival (if busy)
Can be common good – rival (if busy) but not excludable
Can be public good – non rival, non excludable

7. Snow plowing (city streets)
Could be public good (non rival, non excludable)
Could be common resource (non excludable, but rival – if busy and cant get to all streets)

8. Education (public schools vs. private school)
Public education
If live in Solon = Public good
If live outside of Solon but wanted to go to Solon = ….
Natural monopoly (excludable , non rival)

9. Rural Roads
Public goods
Non rival, non excludable
Assume rural = not crowded

10. City streets
If congested =
Common resources (non excludable, but rival)
If not congested =
Public good

11. 2b- why do you think the government provides items that are not public goods?
May provide positive externalities
Ex: education

12. 3. Charlie watches public TV but no donations
A. he is called
Free Rider
B. how can govt. solve problem
First – what is the problem ? …..
Private market cant provide as much as is socially desirable b/c of high costs….
If govt. sees benefit is greater than cost, can provide subsidies to the station

13. 3c. Can private market solve this problem?
Add commercials
Cable TV
…but change the definition…no longer a public good ….= it is now a….….?
Natural monopoly…..excludable but non rival

14. 4. Firms will not undertake the efficient amount of basic scientific research
A. Explain why…..classify basic research

15. 4b. What policy has US adopted?

16. 4c