ECON 142 1st Edition Lecture 6 Outline of Last Lecture I. TestOutline of Current Lecture II. Market FailureIII.Public GoodsIV.ExternalitiesV. Social CostsCurrent Lecture2/11Chapter 5Demand curve: represents value or benefit people see in this goodSupply curve: represents costs associated with this goodMarket failure: where the market left to its own decides fails to produce the efficient/correct/best/optimal level of output pg 140- Market failure justifies government intervention in the marketPublic goods: produced and provided by the government pg 155Characterized by:- Rival consumption (most goods, if I consume it, no one else can-burrito)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Non-Rival goods-public goods one person consuming it doesn’t prevent another person from consuming the same good◦ Non-exclusion: most goods if you pay for it you get it, and if you don't pay for it that's◦ EXCLUSION▪ Public goods, in may cases you can't keep someone from getting it▪ That's non-exclusionPunchline- Because of the free-rider problem, there would at some point be no demand- and therefore no supply- so the market would fail with this good- so we take the decision out of the hands of the marketFour Categories of Goods: pg 154 KNOW ITexcludable, non-excludable, rival, non-rivalIs the internet a public good?Externalities: pg 138- A cost or benefit caused by a transaction that is not party of the transaction- A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service◦ Spillover effect◦ Example: Tree. Neighbor buys apple tree, it cost $300. Branches hang over your property. Every Fall, apples drop off. Benefit: free apples.◦ Neighbor buys tree, costs $300, branches hang over driveway, tree sap all over car, cost: car wash every day.Pollution- Classic example of negative externality- The transaction is the thing causing the pollution (factory, production)- The spillover effect is the polluted air or waterSocial Costs- Private costs+ external costs pg 139- social costs are the full resource costs of an activity including the externalitySupply represents private costs to producersDemand curve represents private benefits to consumersIf there are external costs, we show them as increase in costs. Shift up of supply curve.If you incorporate external costs: right quantity to produce, optimal quantity to produce, is a smaller quantity- What about an external benefits?- An external benefit would work in the other direction- If external costs-shift supply up- External benefits-shifts demand