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ECON 200 Chapter 19

by: Lucy Notetaker

ECON 200 Chapter 19 ECON 200

Lucy Notetaker

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All about public goods and common resources.
Principles of Economics: Microeconomics
Dr. Robert Schwab
Class Notes
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This 3 page Class Notes was uploaded by Lucy Notetaker on Tuesday October 11, 2016. The Class Notes belongs to ECON 200 at University of Maryland taught by Dr. Robert Schwab in Fall 2016. Since its upload, it has received 51 views. For similar materials see Principles of Economics: Microeconomics in Economics at University of Maryland.


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Date Created: 10/11/16
ECON 200 Chapter 19: Public Goods and Common Resources Who owns the moon? That’s pretty much this chapter, well kind of. Let’s begin!  Characteristics of Goods - Two categories of goods in this chapter 1. Common resources- Trees, rhinos and giraffes, which end up being over consumed and depleted 2. Public goods- the military, public health and roads, which struggle with being undersupplied - Some goods clearly belong to people, but some belong to a community or honestly no one - Two factors go into how a good is used or if it is efficiently used 1. Excludable Goods- this means sellers can prevent one from using it if they have no paid for it (you can’t enter a national park without paying an entrance fee) 2. Rival in Consumption- if somebody consumes this good then another’s ability to do the same is decreased (poaching cheetahs) - Private goods have both of these characteristics, but public goods sometimes lack one or both - An example of an in excludable good is a street lamp, you can’t force people to close their eyes when they walk past if they didn’t pay for the light - An item that does not have a rival consumption factor is a stop sign, everyone can benefit from the safety of a stop sign put up Four Categories of Goods 1. Private Goods- both excludable and have rival in consumption 2. Public Goods- complete opposite of private, they are in excludable and have no rival 3. Common Resources- They are rival, but not excludable (rhino horns) 4. Artificial Scarce Goods- they are excludable, but not rival (pay per view movie) Problems With Public Goods and Common Resources - The problems typically have to do with externalities - First is the free rider problem - Free Rider Problem- when the nonexcludability of a public good leads to undersupply (public goods) - My best example of this is a potluck meal. Everyone is told to bring a dish. Let’s say your uncle doesn’t bring a dish, but still eats lunch. He is a free rider. That’s not a big deal, but let’s say multiple families decide not to bring anything, but still eat. Food will be undersupplied. - The second problem is the tragedy of the commons - Tragedy of the Commons- the depletion of a common resource due to individually rational, but collectively inefficient overconsumption - Example: Your grandpa wants to build a log cabin. From his point of view it’s a great idea. It will be cozy, bring the family together and building it will give him something to do. But collectively that is a lot of trees he has to cut down to make it. The rest of the community now can not benefit from the trees he is cutting down. - Keep in mind, if grandpa weighed externalities (or any consumer did) then the demand curve would go down Dealing with Public Goods and Common Resources Basically, we deal with this in three ways (social norms, government regulations, and private property rights) Social Norms - Would you throw a piece of trash on the ground if you knew every time you walked by someone in your neighborhood they would death stare you? - Social norms is imposing behaviors that help society - Maybe it’s the right thing to do or people are protesting with signs and posters trying to get you to behave a certain way Bans, Quotas and Government Prevention - Making laws and outlawing certain behaviors - For example, you can not hunt endangered species that are on the list - A little less severe is a quota - For example, you can only catch two fish from the Potomac every summer (totally just made that up) - For this to work you need to enforce it and have a decently severe punishment to deter people from breaking the ban or quota Government Provision - When a public good is undersupplied the government steps in and supplies it - Some examples are public school and the military - It is too costly to exclude the non users, so the government includes everyone and pays for it with taxes - You want the marginal benefit to equal or outweigh the marginal cost, for this to be a good provision Property Rights - This is when you turn common resources into private goods - Zoos are an example of this, they house and protect wild animals that used to be common goods - You could also grant someone ownership of a plot of land and then anyone who enters is a trespasser - There is also something called tradable allowances (permits) - For example, you need a permit to park in some places, so the parking spaces don’t overfill and then you can’t find parking. - Limited access will help common resources not get depleted too quickly That was a short chapter and fairly straightforward one. Let’s protect the rhinos and not cut down trees (they’ll rise up). Don’t believe me, watch the second Lord of the Rings movie.


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