1. Warm-Up Draw an example of a market with a negative externality.
Indicate the market price and quantity (PMKT and QMKT), the socially optimal price and quantity (POPT and QOPT), and the area of deadweight loss.
Describe a Pigouvian tax and how it solves the problem of deadweight loss.

2. Example: Livestock S D MSC of livestock PMSC DWL POPT PMKT QOPT QMKT
P, MSC of livestock S
PMSC
DWL
POPT
PMKT D
QOPT
QMKT
Quantity of livestock

3. Public Goods and Common Resources
Chapter 18: Public Goods and Common Resources (pages )

4. Types of Goods

5. Private Goods Excludable = only I get to use it
Rival = once I have it you can’t
EXAMPLE: Car dealerships

6. Types of Goods

7. Public Good Non-Excludable = everyone has access
Non-Rival = my use does not diminish your use
EXAMPLE: Public schools

8. How much of a public good?
MSB = MSC
MSB = sum of marginal personal benefits

10. How many streetlights? MC of light = $12 Streetlights
Bob’s WTPB = MPBB
Sandy’s WTPS = MPBS
Total MSB = MPBB+MPBS 1
$10
$18
$28 2 $8
$15
$23 3 $6
$12 4 $4 $9
$13 5 $2

11. Types of Goods

12. Artificially Scare Goods
Excludable & Non-Rival
EXAMPLE: College lecture

13. Types of Goods

14. Common-Pool Resources
Non-Excludible & Rival
EXAMPLE: Alaska crab fishing

15. Common-Pool Goods
Tragedy of the Commons

16. Tragedy of the Commons