ECO2030 1nd Edition Lecture 26Outline of Last Lecture I. Pollution permits and corrective taxOutline of Current Lecture II. Excludable and non rival III. The 4 types of goodsIV. Cost-benefit analysisCurrent 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 fromPPT4 types ofgoods: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 rivalPublic 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
View Full Document
Unlocking...