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Exam 5 lecture 5

by: Karlee Castleberry

Exam 5 lecture 5 Econ 2020

Marketplace > Auburn University > Business > Econ 2020 > Exam 5 lecture 5
Karlee Castleberry
GPA 3.1

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Here are the notes for lecture 5 for exam 5! Sorry I couldn't make it to lectures 3 or 4,!
Principles of Economics: Microeconomics
William M. Finck
Class Notes
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This 3 page Class Notes was uploaded by Karlee Castleberry on Sunday April 24, 2016. The Class Notes belongs to Econ 2020 at Auburn University taught by William M. Finck in Spring 2016. Since its upload, it has received 21 views. For similar materials see Principles of Economics: Microeconomics in Business at Auburn University.


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Date Created: 04/24/16
Exam 5 - lecture 5  Public goods o goods that are both non-rival in consumption and non excludable o Non-rival in consumption- good for which one person’s benefit does not reduce the benefit available to others o Non-excludable- good for which the supplier cannot prevent non-payers from obtaining benefits o Free rider problem  The inability of potential providers of a good or service to obtain payment from those who benefit  Problem: private firms will not sell goods that are non-excludable  Solution: gov’t must provide public goods such that MSB = MSC o Example of a public good:  A study group must decide how many hours of tutoring to purchase.  MSC= $20 per hour  Group: 4 party animals; 2 bookworms Q MB BW MB PA Total MSB 1 8 4 8*2+4*4 = 32 2 7 3 7*2+3*4 = 26 3 6 2 6*2+2*4 = 20 4 5 1 5 4 0  Total MSB = (MB1*Pop1) + (MB2*Pop2)  Q optimal hours  Excise Taxes o Per-unit tax levied on the production of a specific good o Goal of gov’t = maximize revenue o Goal of producer = pass the burden to the consumers S + T S Pc Pc = consumer price Pe PP = producer price Pp Pc – Pp = amount of tax D When the market is taxed, supply shifts vertically by the amount of the tax Consumer burden Producer burden Tax revenue Deadweight Loss 2 o f 3


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