Microeconomics Lecture 11

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Public Goods and

Common Resources

Key Termsexcludability rivalry in consumption private goods public goods common resources club goods free rider cost-benefit analysis Tragedy of the Commons

Four Types of Goods

Private Goods Public Goods

Common Resources Club Goods

Some goods do not have prices

How much should we produce?

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Government policy

Private GoodsGoods that are excludable and rival in consumption.

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Can exclude others If I consume, you cannot

ExcludableCan people be prevented

from using the good? !

Yes No

Rivalry in Consumption

Can one person’s use of a good reduce others use?

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Can two people consume at the same time without

reducing?

Exclude others !

When I consume it diminishes

Public GoodsGoods that are neither excludable

nor rival in consumption. !

Cannot exclude Everyone can consume without

reducing amount

Free Rider

a person who receives a benefit

but does not pay for it

National Defense

Basic Research !

Everybody Benefits

Common ResourcesGoods that rival in

consumption but are not excludable

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Cannot exclude others If I consume, you cannot

Common Resource

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Drink as fast as possible before it runs out

Private Good

Each person has his own cup

Which method will incentivize people

to not waste the resource?

Share one cup Each person gets their own cup

Tragedy of the Commons

If everyone owns it, no one owns it

Privatize the commons

Property Rights

Reduce contention !

Create wealth