Chapter+11+-+Public+Goods+and+Common+Resources+CDJ

=Before we start discussing the chapter, here's a handout version of a powerpoint from the Mankiw website:=  =Different Kinds of Goods = In economy, there are two characteristics of goods: 1. Excludable – a person can be prevented from using a good 2. Rival in consumption – when one person is using the good, other person can't use it. These two characteristics of goods can be divided into four categories : 1. Private goods – goods that can both be excludable and rival in consumption. Only a person who owns the product can use it. 2. Public goods – goods that are neither excludable nor rival in consumption. Everybody can use the product. 3. Common resources – goods that are rival in consumption but not excludable. When one person owns a product, other people have fewer products available for them to own. 4. Natural Monopolies – goods that are excludable but not rival in consumption.

natural monopolypicture: http://www.kaldor.no/energy/53ut-2.gif Let's take a look at this chart with the four categories with examples: source: textbook

=Public Goods = As mentioned above, public goods refer to the goods that are not excludable or rival in consumption. Anybody can enjoy the public goods. One good example would be the fireworks: source: http://scarlett-journey.net/2008/12/31/new-year-eve/

Because fireworks happen in the sky, everybody can see it, even people who didn't pay to watch the fireworks. These people are called free riders. The free riders make fireworks a non profitable good. These are the examples of important public goods listed in the textbook: national defense, basic research , and fighting poverty.

=Common Resources = media type="file" key="econ2.mov"

 =The importance of Property Rights =

So, to sum up the chapter, let's look at the property rights. In this chapter, we discussed how the market fails to allocate resources efficiently because of the not well-established property rights. In this case, when markets fail due to the absence of property rights, the government can step in and solve the problem by using regulation or taxing.

This is a video made by students. media type="youtube" key="IArvYQOE39Q" height="344" width="425" source: http://kr.youtube.com/watch?v=IArvYQOE39Q

** __S__ ** ** __ummary__ **
When markets fail due to the absence of property rights, the government can step in and solve the problem by using regulation or taxing
 * public goods refer to the goods that are not excludable or rival in consumption
 * common resources are not excludable but rival in consumption
 * A common resources create new problem: how much is it going to be used? (Tragedy of the Commons)

=Practice Questions =

1. Give two examples of private goods, public goods, and common resources. 2. When dealing with different kinds of goods, what are the two questions we should ask?

Answers:
1. **Private goods**: congested toll roads, ice-cream cones, etc; **public goods**: uncongested nontoll roads, fire alarm, etc; **common resources**: congested nontoll roads, fish in the ocean, etc. 2. **Is the good excludable?** and **Is the good rival in consumption?**