2. GOVERNMENT AND MARKET FAILURE Pertemuan 23
Matakuliah : J0114-Teori Ekonomi
Tahun : 2009
GOVERNMENT AND MARKET FAILURE Pertemuan 23

3. Public Goods Private Goods Public Goods Rivalry Excludability
Nonrivalry
Nonexcludability
Free-Rider Problem
Optimal Quantity of a Public Good
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4. Demand for Public Goods
Two Individuals
(1)
Quantity
Of Public
Good
(2)
Adams’
Willingness
To Pay (Price)
(3)
Benson’s
Willingness
To Pay (Price)
(4)
Collective
Willingness
To Pay (Price) 1 2 3 4 5 $4 3 2 1 + $5 4 3 2 1 = $9 7 5 3 1
Graphically…
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5. Demand for Public Goods$9 7 5 3 1
Collective Demand and Supply
Optimal
Quantity
Collective Demand S
$7 for 2 Items
$3 for 4 Items
Collective
Willingness
To Pay
Connect the Dots DC
Comparing
MB and MC 1 2 3 4 5 Q P
Benson’s Demand $6 5 4 3 2 1
Benson
$4 for 2 Items
$2 for 4 Items D2 1 2 3 4 5 Q P
Adams’ Demand $6 5 4 3 2 1
Adams
$3 for 2 Items
$1 for 4 Items
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6. Negative Externalities Positive ExternalitiesQ
Negative
Externalities St St Dt
Positive
Externalities S
O 28.1 D D
Overallocation
Underallocation Qo Qe Qe Qo
Individual Bargaining: Coase Theorem
Limitations
Liability Rules and Lawsuits
O 28.2
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7. Externalities Government Intervention A Market-Based Approach
Direct Controls
Specific Taxes
Subsidies and Government Provision
Subsidies to Buyers
Subsidies to Producers
A Market-Based Approach
The Tragedy of the Commons
A Market for Externality Rights
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8. Externalities Operation of the Market Advantages Real-World Examples PQ
Price Per Pollution Right
Quantity of 1-Ton Pollution Rights
D2016
S=Supply of
Pollution
Rights
D2006
$200
$100
500
750
1000
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9. Externalities Society’s Optimal Amount of Externality Reduction
MC, MB, and Equilibrium MC
Socially
Optimum Amount
Of Pollution
Abatement
Society’s Marginal Benefit and Marginal
Cost of Pollution Abatement (Dollars) MB
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10. Global Warming
Carbon-Dioxide Emissions, Tons Per Capita, Selected Nations 2004
GLOBAL PERSPECTIVE
United States
Australia
Canada
Czech Republic
Germany
Japan
United Kingdom
Italy
Spain
France
19.8
17.0
16.2
11.8
10.3
9.2
8.8
7.4
7.2
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6.2

11. Information Failures Asymmetric Information
Inadequate Information Involving Sellers
Example: Gasoline Market
Example: Licensing of Surgeons
Inadequate Information Involving Buyers
Moral Hazard Problem
Adverse Selection Problem
Workplace Safety
Qualification
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