Selected sections of chapter 15 1

2 characteristics Rivalry in consumption – when one person buys and consumes a good, it is not available to others. Excludability – Sellers can restrict the benefits to those who pay for the good. Examples??? 2

Public goods are those goods that are nonrival and nonexcludable. What is an example of a public good? Is it nonrival? Is it nonexcludable? 3

Free-rider problem where a consumer can enjoy the benefit of the good without having to pay for the benefit. 4

Demand for public goods differs form the market demand for private goods. Phantom demand Supply of public goods Marginal cost curve 5

Compare marginal benefits & marginal costs 6

Compare benefit of providing incremental units of public goods with the costs of providing these additional units. 7

A cost or benefit incurred by a third party to a transaction. 8

occur when producers are able to shift some of their costs onto the community. How do we illustrate this on a graph? 9

occur when the benefits of a good are received by others in the community although they did not pay for them. these benefits are not reflected in the individual demand curve. How do we illustrate this on a graph? 10

Negative externalities Direct government controls or taxes Positive externalities Subsidies or government provision 11