10 Public Goods and Common Resources CHAPTER 1 2 3 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to Distinguish among private goods, public goods, and common resources.
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Public Goods and Common Resources
3C H A P T E R C H E C K L I S T
Explain the free-rider problem and how public provision can help to overcome that problem.
Explain the tragedy of the commons and review the possible solutions to that problem.
Figure 10.1 shows this four-fold classification of goods and services.
Figure 10.2 shows how to find an economy’s MB curve.
Lisa’s marginal benefit curve is MBL.
Max’s marginal benefit curve is MBM.
The MB curve for the economy is the vertical sum of the marginal benefit curves of everyone in the economy—Lisa and Max.
Figure 10.3 shows the efficient quantity of a public good—surveillance satellites.
1.If MB exceeds MC, an increase in the quantity will make resource use more efficient.
2. IfMC exceeds MB, a decrease in the quantity will make resource use more efficient.
3. IfMB equals MC, resource use is efficient.
4.The efficient quantity is 200 satellites.
5.Private provision leads to underproduction—in the extreme, to zero production.
Figure 10.4(a) shows the preferences of two political parties in an election.
1. Doves would like to provide 100 satellites.
2. The Hawks would like to provide 300 satellites.
Figure 10.4(b) shows an efficient political outcome.
3. The political outcome is 200 satellites because, unless each party proposes 200 satellites, the other party can beat it in the election.
1. The efficient quantity is 200 satellites.
If the bureau is successful in the pursuit of its goal, the politicians provide 300 satellites.
2. With 300 satellites, marginal cost exceeds marginal benefit.
3. With 300 satellites, inefficient overproduction occurs.
1.The average catch per boat, which is the marginal private benefit, MPB, decreases as the number of boats increases.
2. The marginal cost per boat isMC (assumed constant).
3.Equilibrium occurs where marginal private benefit, MPB, equals marginal cost, MC.
The equilibrium number of boats fishing is 8,000 and overfishing occurs.
Overfishing occurs because no one takes into account the effects of her/his actions on other users of the resource.
1. At each number of boats, the marginal social benefit curve, MSB, is below the MPB curve.
2. The resource is used efficiently when MSB equalsMC.