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Public Goods. Definition: Goods that do not get used up when consumed. In other words, one person’s consumption of a good doesn’t reduce anyone else’s potential consumption of the same good.

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Presentation Transcript
Public goods
Public Goods

Definition: Goods that do not get used up when consumed. In other words, one person’s consumption of a good doesn’t reduce anyone else’s potential consumption of the same good.

Obviously, these are not physical items that get used up. Instead they are usually ideas and artistic expressions.

They are at the core of the Information Age Economy, since information is a public good.

The Demand for Public Goods is the vertical sum of individual demands.


Vertical addition of demands
Vertical Addition of Demands

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Public goods1
Public Goods

Think of book titles as public goods, but physical copies of single book title are private goods that embody a public good.

Several questions arise: how many titles are optimal to publish? How many copies of each title would be optimal? How do competitive markets work? Monopolies? Finally, is it possible to produce public goods efficiently?


In principle a perfectly discriminating monopolist can produce efficient amount of public good
In principle, a perfectly discriminating monopolist can produce efficient amount of public good.

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Production of a single book title
Production of a Single book title produce efficient amount of public good.

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MC of printing

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number of copies of a title

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Market Demand for Titles produce efficient amount of public good.

MC of writing another title

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Perf Discrimination Demand for titles

Attainable Demand for titles

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number of titles written


Tragedy of the commons
Tragedy of the Commons produce efficient amount of public good.

  • Common Property Resource – lake, forest, any productive resource that allows free use.

  • The tragedy is that the resource is overused.

  • Greater tragedy is that it is overused to the point where its entire value might be dissipated.


Fishermen on lake
Fishermen on Lake produce efficient amount of public good.


Illustrating overuse
Illustrating Overuse produce efficient amount of public good.


Business applications
Business Applications produce efficient amount of public good.

  • Should a firm have internal charges when one division helps another (e.g. technical support)?

  • Network Effects (again).


End of course
End of Course produce efficient amount of public good.

  • What did you think of the course? This format? Distant learning? The exams?

  • Let me know if you found the animations to be of value. If so, I will animate more slides for this course next time. If not, I won’t.


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