Chapter+11+Public+Goods+and+Common+Resources.JAKS

=Chapter 11. = =Public Goods and Common Resources  =

1. Different kinds of goods



1). Excludability: the property of a good whereby a person can be prevented from using it 2). Rivalry in consumption: the property of a good whereby one person's use diminishes other people's use.


 * [Kinds of Goods]**

1). Private goods: goods thart are both excludable and rival in consumption Ex: icecream seller can just not sell his icecream to people. And whenever someone purchases an icecream, another person cannot get the same icecream.

2). Public goods: goods that are neither excludable nor rival in consumption Ex: Siren canot be prevented from being heard by everyone. And a single listener does not take away other people's opportunity to listen to the siren

3). Common resources: goods that are rival in consumption but not excludable. Ex: Whenever fisherman catches a fish, there are less fish for other fisherman to catch. However, it's difficult to stop people from catching fish from the huge ocean.

4). Low-congestion goods or natural monopoly: excludable but not rival in consumption Ex: radio station can decide to stop broadcasting. But a single listener of the broadcast does not stop others from listening to the same broadcast.

2. Public Goods


 * The free-rider problem**

Free riders are people who receive benefit from a good without paying for it. For example; we build streetlights using our money? We’re using them for free. Therefore, private markets do not supply that good free riders use. This is when government comes in. If the total benefit of the good exceed the cost, government will provide it with tax revenue.


 * Important public good**

1).Natural defense Once the country is defended, everyone receives the benefit. Also additional person who receive the benefit do not prevent others from getting the same benefit.

2). Basic research General knowledge is provided to everyone and one person’s use of knowledge do not reduce others’ knowledge

3). Fighting poverty Government tax wealthy people to help the poor and raise the whole living standards of society, which make everyone better off.

Before public good is provided, government compares the cost and benefit of that public good. It is because there is no price to judge the value of the public good. For example, is building highway necessary? Would the total benefit exceed the cost? Cost-benefit analysis is used to calculate the benefit of the project as a whole.
 * Cost-Benefit Analysis**

3. Common Resources.

1)Clean air and water Clean air and water can be polluted as it gets used, so it affects other people’s use

2)Congested Road When people use the road, it creates traffic and cause negative externality.

3) Fish, whales, and other wildlife As people catch animals for various purposes, the number of species decline.

A parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole. When one uses a common resource, others cannot use it. The government tries to reduce the use of common resource through regulation and tax.
 * Tragedy of the commons**