Chapter+11-+Public+Goods+and+Common+Resources+(09-10)




 * Glossary**
 * **common resources** || goods that are rival in consumption but not excludable ||
 * **cost–benefit analysis** || a study that compares the costs and benefits to society of providing a public good ||
 * **excludability** || the property of a good whereby a person can be prevented from using it ||
 * **free rider** || a person who receives the benefit of a good but avoids paying for it ||
 * **private goods** || goods that are both excludable and rival in consumption ||
 * **public goods** || goods that are neither excludable nor rival in consumption ||
 * **rivalry in consumption** || the property of a good whereby one person’s use diminishes other people’s use ||
 * **Tragedy of the Commons** || a parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole ||

Introduction; In chapter 11, we are going to talk about the public goods and common resources. The key question in this chapter is how efficient does market work in providing the goods that people demand. This actually depends on the good. See whether the good is excludable or rival in consumption.


 * Is the good excludable? Is the good rival in consumption? **

**4** different kinds of goods
 * private goods : excludable & rival in comsumption
 * public goods : neither excludable & rival in consumption
 * common resources : not excludable but rival in consumption
 * natural monopoly : excludable but not rival in consumption

** Non-excludable goods ** (available for everyone) //Public goods// are **not excludable** because it is impossible to prevent someone from using the good and **not rival in consumption** because one person's enjoyment of the good does not reduce anyone else's enjoyment of the good. Therefore, causes market failure called, free rider problem. Free riders are people who **receives benefits of a good but does not pay for it.** This is caused by externalitie s because people do not take the external benefit into account. One of the solutions for this problem will be done by the **intervention of the government**. Government can remedy this problem by taxing.

Most **important** public goods are: National Defense Basic research Fighting Poverty (helping poor) > How does the government determine when to intervene? By using Cost-benefit Analysis, which compares the cost & benefits to society of providing a public good. This is only the rough approximation at best because this analysis **do not have any price signals to observe**, unlike private goods. Thus, the government is approximating whether they should provide a public good and how much to provide.
 * impossible to prevent any single person from enjoying the benefit
 * does not reduce the benefit to anyone else
 * neither excludable nor rival in consumption
 * most expensive public goods
 * For **specific technological knowledge** (smaller microchip), **patent** gives the exclusive right to the knowledge
 * patent makes knowledge EXCLUDABLE because they pay
 * For **general knowledge** (math theorem), it enters the society's general pool of knowledge so that anyone can use it without paying for it.
 * Because some profit seeking firms only search for the **specific technological knowledge,** they free ride on **general knowledge**, meaning that they do not spend much on basic research
 * WAYS to provide public goods of general knowledge
 * subsidize basic research
 * but sometimes drawing lines in what to support is difficult
 * congressmen migh not be familiar with the topics
 * Anti-poverty programs are sponsdered by the taxes paid by families who tare financially more successful
 * advocates: fighting poverty is a public good
 * free rider problem: enjoying the generosity of others without contributing

To understand better, watch this video media type="youtube" key="IArvYQOE39Q" height="344" width="425"

//Common Resources// are **not excludable** because it is impossible to prevent someone from using the good but **rival in consumption** because one's use affects the other's use. Thus, the policymakers need to concern **how much the good is used** in order to prevent the problem. This problem is understood with the parable called the Tragedy of the Commons. It illustrates why common resources get **used more than is desirable** from the standpoint of society as a whole.

Why does it cause? How to prevent? Lesson: When one person uses a common resource, he or she diminishes other people's enjoyment.
 * Because of externality
 * Because people neglect the negative externality when deciding how many good to use, the result is the excessive number of good
 * Internalize externality by taxing and giving our permits

Most **important** common resources are: Clean Air & Water Congested roads Fish, whales, and other wildlife
 * markets do not adequately protect the environment
 * negative externality: pollution
 * remedied by regulation or corrective tax on polluting activities
 * use of rode yields negative externality
 * when one car enters a congested road, the other drives much slower
 * public or common
 * remedied by charging toll: corrective tax on externality of congestion
 * Other policies include **charging higher tolls on rush hour** or **taxing on gasoline**
 * People have little incentive to maintain the species for next year. Thus it destroys the value of marine populations because anyone can catch a fish at anytime.
 * remedied by licenses
 * But, it is difficult to remedy because many countries have access to oceans, which requires international cooperation. Also because ocean is too vast, it is hard to control

//Importance of Property Rights//
 * The market fails to allocate resources efficiently because property rights are not well established. This means that item of value **does not have an owner with legal authority.**
 * Government can potentially solve the problem by:
 * pollution permits
 * restrictions
 * gov. to supply good that the market failed to supply

Conclusion: In this chapter, we learned about goods that are adequately provided and some aren't. Sometimes, societies rely on the government for protection and national defense. If the policy is well run by the government, the allocation of resources are more efficient in terms of economic well being.

Chapter Quiz 1. What are the four types of good? How are they distinguished? Give me at least 2 examples for each type. 2. What does the public good cause? How is it remedied? 3. How does the common resource apply to everyone? Give me at least 2 examples. 4. What is property rights? Why is it important in the market?


 * Bibliography 11 **