Problem Set

Publics Goods and Tragedy of the Commons

Chapter Outline

    Four types of goods Private goods and public Goods Nonrival private goods Common resources and the tragedy of the commons

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Introduction

 Probability of death by asteroid is about the same as death by airliner crash.  Asteroids can be deflected.

• But there is no market for asteroid deflection. Why?

Asteroid Toutatis

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Introduction

 Consider paying $100 for jeans.

• You get exclusive use of the jeans. • If you don’t pay for the jeans you don’t get them.

 Consider paying $100 for asteroid protection.

• If enough people pay, the asteroid will be deflected without your $100. • If enough people do not pay and you pay $100, you get no protection. • Result: Whether you pay or not, you will get the same amount of protection.

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Introduction

 Markets are able to produce private goods in efficient quantities.

• Jeans are an example of a private good.

 Markets are unlikely to produce public goods in efficient quantities.

• Asteroid protection is an example of a “public good”

 The difference in these goods is the subject of this chapter.

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Four Types of Goods

 Jeans are excludable and asteroid deflection is nonexcludable.  Nonexcludable – means people who don’t pay cannot be easily prevented from using the good.  Jeans are rival and asteroid deflection is nonrival  Non-Rival – means one person’s use of the good does not reduce the ability of another person to use it.

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Four Types of Goods

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Private Goods and Public Goods

 Private goods are excludable and rival:

• Someone who doesn’t pay, doesn’t get it. • Creates an incentive to pay for and produce • Because the private goods are rival and excludable, the market output is efficient.

 Public goods are nonexcludable and nonrival:

• Difficult to get people to pay for public goods voluntarily. • Markets will underprovide public goods.

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Private Goods and Public Goods

 Mosquito...