ECO2030 1nd Edition Lecture 26 Outline of Last Lecture I Pollution permits and corrective tax Outline of Current Lecture II Excludable and non rival III The 4 types of goods IV Cost benefit analysis Current Lecture Excludability property of a good whereby a person can be prevented from using it When there is a price to pay for the good Free things are not excludable e g air etc Rivalry in consumption property of a good whereby one person s use diminishes other peoples use when one person s use diminishes others persons use e g cable internet Hint know figure 1 chap 11 matrix for quiz goods can be divided in 4 different categories Graph from PPT 4 types of goods 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 Private goods Consumption is Excludable and non rival Public goods Consumption is not excludable and not rival Common resources Consumption is rival but not excludable Club goods Consumption is excludable but not rival Public Goods and Common resources They are not excludable meaning people cannot be prevented from using them Neither have prices attached to them They both have both positive and negative externalities Private decisions about consumption and production can lead to an inefficient allocation of resources meaning there may be a role for government Public Goods Free rider problem need to know for quiz government can remedy the free rider problem If the total benefits of a public good exceeds its cost government will provide the public good and pay for it with tax revenue This makes everyone better off Some important public goods National defence Basic research general knowledge Fighting poverty welfare systems TANF Food stamps subsidized housing programs etc Example of free rider problem A lighthouse consumption is non excludable and not rival Because of this there is a high desire not to pay for the service any ship that can see the thing benefits the same whether they pay for it or not The free rider problem when the number of people who benefit from a service is large then it is hard to exclude someone from using the service Public Goods Cost benefit analysis will be on exam and quiz Governments need to decide which public goods to provide and which ones not to provide use cost benefit analysis This is done by comparing the costs vs the benefits to society without price signals to observe this is difficult findings are rough approximations e g A new traffic light the cost 10 000 the benefit is more safety Say the risk of fatal accidents decreases from 1 6 to 1 1 5 benefit They only way this is possible to calculate is if you place a value on a human life
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