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Providing Goods and some Problems
part 2
So far we have mostly
talked issues related to
these type of goods
We will talk more
about this one in a
very long time later
Private
goods
Common
Resource
Natural
Monopolies
Public goods
Excludable Nonexcludable
Rival
Nonrival
Good Types…a little more detail
But now I want to focus on these types
Private
goods
Common
Resource
Natural
Monopolies
Public goods
Excludable Nonexcludable
Rival
Nonrival
Good Types…a little more detail
Classifying Goods and some Problems:
1.) Classification and Good Types
3.) Problems of the Non-Excludables
2.) Providing Public Goods
Public goods are in theory unlimited, so it’s hard
to put a price on them so markets don’t provide
these as much.
Private
goods
Common
Resource
Natural
Monopolies
Public goods
Excludable Nonexcludable
Rival
Nonrival
Public goods
Good Types…a little more detail
Why Markets don’t do a good job with these types:
The good is not produced in the market, even if buyers collectively value
the good higher than the cost of providing it. Public Goods have these
qualities and therefore governments often have to produce them.
Good Types…a little more detail
Goods that are
Non-excludable
-You can’t stop someone else from using it, so you can’t
make money off of it and thus are free to use.
Goods that are
Non-rivals
- Since there is an infinite supply of these, it is difficult to
control and a market with very few suppliers seems
“natural”
Result:
-A person who enjoys the benefits of a good or service
without paying for it.
Because of the free-rider problem, the market would
provide too small a quantity of a public good.
To produce the efficient quantity, government action is
required.
Public Goods –The problem that some don’t pay
Good Types…a little more detail
Free Rider
No individual has an incentive 激励 to pay for providing the
efficient quantity of a public good because each individual’s
marginal benefit is less than the marginal social benefit.
(MPB < MSB)
- Someone has to pay for them, but everyone gets to use them.
This is a primary justification for the existence of government.
一个主要的原因有政府
- The decision to make public goods is a cost/benefit analysis.
(as well as other factors, such as politics.)
Providing Public Goods
Providing Public Goods
Questions to understand:
1.) How do you get people to pay for these goods then?
2.) How much Public Goods should be produced?
3.) What problems happen with producing Public goods?
Providing Public Goods
Questions to understand:
1.) How do you get people to pay for these goods then?
2.) How much public goods should be produced?
3.) What problems happen with producing Public goods?
Taxes
Where the money comes to
pay for public goods
Introduction to Taxes:
3.) Efficacy and Fairness of Taxes
Three ways to view types of Taxes:
I. Proportional Tax
II. Progressive Tax
III. Regressive Tax
How do you get people to pay for these goods then?
And add all the issues
about it.
Two principles:
Equity vs. Efficiency 公平与效率
Efficacy and Fairness of Taxes
2.) Ability to Pay
Principle:
1.) Benefits Principle:
Those with greater ability to
pay a tax should pay more
tax.
Those who benefit from public
spending should bear the
burden of the tax that pays for
that spending.
Who should pay for those
public goods?
Providing Public Goods
Questions to understand:
1.) How do you get people to pay for these goods then?
2.) How much public goods should be produced?
3.) What problems happen with producing public goods?
Cost-Benefit
Analysis
(CBA)
Providing Public Goods
How much Public Goods should be produced?
- a study that compares the costs and
benefits of providing a public good.
- If the benefit of a public good
exceeds or equals the cost of
providing it, government should
provide the good and pay for it with
a tax if the private market doesn’t
provide enough of it.
Means an additional one, the
measurement from one unit to the next.
最后的东西之一
Marginal Benefits VS. Marginal Costs
边际效益 针对 边际成本
(MB) (MC)
If MB > MC = It is worth doing 这是值得的
If MB = MC = It may be worth doing “a wash” 收支平衡
If MB < MC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
Remember this?
Means an additional one, the
measurement from one unit to the next.
最后的东西之一
Marginal Social Benefits VS. Marginal Social Costs
边际效益 针对 边际成本
(MB) (MC)
If MSB > MSC = It is worth doing 这是值得的
If MSB = MSC = It may be worth doing “a wash” 收支平衡
If MSB < MSC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
Just apply it to society as a
whole.
The benefit a public good provides is the value of its
services.
Because security lights in a common parking area are
non-rival and non-excludable, they are a public good.
Everyone consumes the same quantity of them.
To find the economy-wide value of the security lights,
we add together the marginal benefits of everyone
who benefits from them.
Marginal Social Benefit (MSB) of a Public Good
Providing Public Goods
Example with street lights:
How many lamp posts to make?
Find each person’s marginal benefit
MB
Q
1 2 3 4 5 6
70
60
50
40
30
20
10 MB
Providing Public Goods
Example with street lights:
MB
Q
1 2 3 4 5 6
70
60
50
40
30
20
10
MB
How many lamp posts to make?
Find each person’s marginal benefit
Providing Public Goods
Example with street lights:
MB
Q
1 2 3 4 5 6
70
60
50
40
30
20
10
MB
How many lamp posts to make?
Find each person’s marginal benefit
Providing Public Goods
Example with street lights:
MB
Q
1 2 3 4 5 6
70
60
50
40
30
20
10 MB
How many lamp posts to make?
Find each person’s marginal benefit
Providing Public Goods
Example with street lights:
MB
Q
1 2 3 4 5 6
70
60
50
40
30
20
10
MB
MB
MBMB
Add them all up to equal MSB
How many lamp posts to make?
Providing Public Goods
Example with street lights:
MSB
Q
1 2 3 4 5 6
250
200
175
150
125
100
75
MSB
Add them all up to equal MSB
How many lamp posts to make?
Providing Public Goods
Example with street lights:
MSB
Q
1 2 3 4 5 6
250
200
175
150
125
100
75
MSB
Add them all up to equal MSB
How many lamp posts to make?
Providing Public Goods
Example with street lights:
Notice the vertical
axis numbers have
increased to show
that this single line is
all four lines
combined
MSB & MSC
Q
1 2 3 4 5 6
250
200
175
150
125
100
75
MSB
MSC = MSB
MSC
MSC = MSB = efficient amount
of public goods to make
How many lamp posts to make?
Providing Public Goods
Example with street lights:
The Efficient Quantity of a Public Good?
If MSB (MB) = MC, resources are used efficiently.
If MC < MSB, resources can be used more efficiently
by increasing the quantity produced.
If MC > MSB, resources can be used more efficiently
by decreasing the quantity produced.
Providing Public Goods
P
Q
MC
MPB
P
Q
MSC
MSB
P
EQ
P
EQ
Private goods Public goods
So it’s the same idea, just add
“society”
Providing Public Goods
Questions to understand:
1.) How do you get people to pay for these goods then?
2.) How much public goods should be produced?
3.) What problems happen with producing public goods?
Cost Benefit Analysis
How much is a life worth?
Cost Benefit Analysis
How much is a life worth?
Exactly how many police
SHOULD there be? And how
will they be paid for?
Cost Benefit Analysis
How much is a life worth?
Is it worth the marginal cost to
have more firetrucks purchased
by the government?
Cost-Benefit
Analysis
(CBA)
Providing Public Goods
- a study that compares the costs and
benefits of providing a public good.
- CBA are imprecise, 不精确 so the efficient
provision of public goods is more difficult
than that of private goods.
Problem:
- Measuring the benefit is usually
difficult and with the free rider issue.
What problems happen with producing public goods?
Providing Public Goods
What problems happen with producing public goods?
Asymmetric
Information
- Buyers and sellers don’t have
equal information. One has more
then the other and can cheat the
other.
非对称信息
Asymmetric
Information
非对称信息
If one side knows more then
the other side they can cheat
them
Providing Public Goods
What problems happen with producing public goods?
Asymmetric
Information
Moral Hazard - People who have asymmetric information,
and the accuracy of the information they have
cannot be monitored 监控 or challenged 挑战,
so they have an incentive to behave
differently.
Who will police the police?
Moral Hazard
How many is
enough?
If it is your government job to
make bridges, would you ever
say, “Ok we have enough bridges
now, I don’t need that job
anymore.
Check out China’s Ghost towns.
Moral Hazard
Who will police the
police?
If you rent a car and you don’t
own it.
Moral Hazard
Who will police the
police?
Insurance保险
And you didn’t have to pay for
anything if the car has a
problem…
Moral Hazard
Would you treat it the same as if
you owned it and was personally
responsible?
Moral Hazard
Who will police the
police?
Cost Benefit
Analysis
How much is a life
worth?
Asymmetric
Information
非对称信息
Is it ok to be ignorant?无知
Providing Public Goods
What problems happen with producing public goods?
Asymmetric
Information
Moral Hazard
Rational Ignorance
理性 无知
- The decision not to acquire
information because the marginal
cost of doing so exceeds the
marginal benefit.
Providing Public Goods
What problems happen with producing public goods?
Why Government Is Large?
Part of the reason why government is large is
Inefficient overprovision of public goods
Peoples’ rational ignorance
Once a bureaucracy 官僚 gets established 既定, its goal of
budget maximization combined with people’s rational
ignorance explains why government takes a large
proportion of total income.
Classifying Goods and some Problems:
1.) Classification and Good Types
3.) Problems of the Non-Excludables
2.) Providing Public Goods
Different kinds of goods with different problems
For both Public Goods and Common Resources,
Externalities happen because something of value
has no price attached to it.
So, private decisions about consumption and
production can lead to an inefficient 低效
outcome.
Problems of the Non-Excludables
Why Markets don’t do a good job with these types:
The good is not produced in the market, even if buyers collectively value
the good higher than the cost of providing it. Public Goods have these
qualities and therefore governments often have to produce them.
Goods that are
Non-excludable
-You can’t stop someone else from using it, so you can’t
make money off of it and thus are free to use.
Goods that are
Non-rivals
- Since there is an infinite supply of these, it is difficult to
control and a market with very few suppliers seems
“natural”
Result:
Problems of the Non-Excludables
-A person who enjoys the benefits of a good or service
without paying for it.
Because of the free-rider problem, the market would
provide too small a quantity of a public good.
To produce the efficient quantity, government action is
required.
Public Goods –The problem that some don’t pay
Free Rider
Problems of the Non-Excludables
Cost Benefit Analysis
How much is a life worth?
Cost-Benefit
Analysis
(CBA)
Providing Public Goods
- a study that compares the costs and
benefits of providing a public good.
- CBA are imprecise, 不精确 so the efficient
provision of public goods is more difficult
than that of private goods.
Problem:
- Measuring the benefit is usually
difficult and with the free rider issue.
What problems happen with producing public goods?
Moral Hazard
Who will police the
police?
Cost Benefit
Analysis
How much is a life
worth?
Asymmetric
Information
非对称信息
Common resources have the biggest
problem of them all
Private
goods
Common
Resource
Natural
Monopolies
Public goods
Excludable Nonexcludable
Rival
Nonrival
Problems of the Non-Excludables
- Since there is a limited supply of these,
once they are gone there is no more.
You can’t stop me from consuming the good, and more
consumption by me means less of the good available for you.
Why Markets don’t do a good job with these types:
Goods that are
Non-excludable
-You can’t stop someone else from using it, so you can’t
make money off of it and thus are free to use.
Goods that are
Non-rivals
Result:
Problems of the Non-Excludables
- occurs when a user depletes the amount of the
common resource available to others but does
not take this cost into account when deciding
how much to use the common resource.
Common Resources –The Tragic Overuse Problem
Overuse
In simpler words:
Your using too damn much stuff!!!
Problems of the Non-Excludables
Go watch this movie called
“The Lorax” it’s a famous
Dr. Seuss children’s book
that show the main idea that
is the problem.
Common Resources –The Tragic Overuse Problem
Overuse
Tragedy of the
Commons
公地悲剧
- It is the absence of incentives to prevent
the overuse and depletion of a commonly
owned resource.
In the case of a common resource, the
marginal social cost of my use of that
resource is higher than my individual
marginal cost
Common resources left to the free market
suffer from overuse.
***sustainable -
可持续发展
Problems of the Non-Excludables
Examples – through the earth
Suppose we have three
privately owned farms and
this upper right corner is
owned by no one.
An example…
And each of these farmers
have lots of sheep.
Now, these sheep eat grass.
The sheep can eat the grass
on the farm owned by the
farmer…
Or…
They could eat the grass on
this empty land that no one
owns. (It’s a free Common
Resource!)
What do you think would happen
if all the farmers decide to take
advantage of this?
And what do you think would
happen to the land itself?
Land goes to hell right? And in the
long run?
All that is left is what the farmers
started with the common resource
totally destroyed.
Amount
Sustainability
Tragedy of the Commons 公地悲剧
Sheep Grazing land
Maximum sustainable
amount
Sustainability
可持续发展
Problems of the Non-Excludables
Private goods = limited and to make them you need
common resources
Private
goods
Common
Resource
Natural
Monopolies
Public goods
Excludable Nonexcludable
Rival
Nonrival
Public goods = unlimited and to make them you need
common resources
Natural Monopolies = unlimited and to make them you need
common resources
Result: One big f@%ked up
mess that has been passed
down to you and it’s your
turn to deal with it.
Tragedy of the Commons 公地悲剧
Problems of the Non-Excludables
So to summarize...
Private
Goods
Common
Resource
Natural
Monopolies
Public
Goods
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival
Cost-Benefit
Analysis
(CBA)
Providing Public Goods
How much Public Goods should be produced?
- a study that compares the costs and
benefits of providing a public good.
Means an additional one, the
measurement from one unit to the next.
最后的东西之一
Marginal Benefits VS. Marginal Costs
边际效益 针对 边际成本
(MB) (MC)
If MB > MC = It is worth doing 这是值得的
If MB = MC = It may be worth doing “a wash” 收支平衡
If MB < MC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
Means an additional one, the
measurement from one unit to the next.
最后的东西之一
Marginal Social Benefits VS. Marginal Social Costs
边际效益 针对 边际成本
(MB) (MC)
If MSB > MSC = It is worth doing 这是值得的
If MSB = MSC = It may be worth doing “a wash” 收支平衡
If MSB < MSC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
-A person who enjoys the benefits of a good or service
without paying for it.
Because of the free-rider problem, the market would
provide too small a quantity of a public good.
To produce the efficient quantity, government action is
required.
Public Goods –The problem that some don’t pay
Good Types…a little more detail
Free Rider
Moral Hazard
Who will police the
police?
Cost Benefit
Analysis
How much is a life
worth?
Asymmetric
Information
非对称信息
Common Resources –The Tragic Overuse Problem
Overuse
Tragedy of the
Commons
公地悲剧
- It is the absence of incentives to prevent
the overuse and depletion of a commonly
owned resource.
In the case of a common resource, the
marginal social cost of my use of that
resource is higher than my individual
marginal cost
Common resources left to the free market
suffer from overuse.
***sustainable -
可持续发展
Problems of the Non-Excludables
The end of part 2
Thanks 

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Public Goods and Issues SFLS

  • 1. Providing Goods and some Problems part 2
  • 2. So far we have mostly talked issues related to these type of goods We will talk more about this one in a very long time later Private goods Common Resource Natural Monopolies Public goods Excludable Nonexcludable Rival Nonrival Good Types…a little more detail
  • 3. But now I want to focus on these types Private goods Common Resource Natural Monopolies Public goods Excludable Nonexcludable Rival Nonrival Good Types…a little more detail
  • 4. Classifying Goods and some Problems: 1.) Classification and Good Types 3.) Problems of the Non-Excludables 2.) Providing Public Goods
  • 5. Public goods are in theory unlimited, so it’s hard to put a price on them so markets don’t provide these as much. Private goods Common Resource Natural Monopolies Public goods Excludable Nonexcludable Rival Nonrival Public goods Good Types…a little more detail
  • 6. Why Markets don’t do a good job with these types: The good is not produced in the market, even if buyers collectively value the good higher than the cost of providing it. Public Goods have these qualities and therefore governments often have to produce them. Good Types…a little more detail Goods that are Non-excludable -You can’t stop someone else from using it, so you can’t make money off of it and thus are free to use. Goods that are Non-rivals - Since there is an infinite supply of these, it is difficult to control and a market with very few suppliers seems “natural” Result:
  • 7. -A person who enjoys the benefits of a good or service without paying for it. Because of the free-rider problem, the market would provide too small a quantity of a public good. To produce the efficient quantity, government action is required. Public Goods –The problem that some don’t pay Good Types…a little more detail Free Rider
  • 8. No individual has an incentive 激励 to pay for providing the efficient quantity of a public good because each individual’s marginal benefit is less than the marginal social benefit. (MPB < MSB) - Someone has to pay for them, but everyone gets to use them. This is a primary justification for the existence of government. 一个主要的原因有政府 - The decision to make public goods is a cost/benefit analysis. (as well as other factors, such as politics.) Providing Public Goods
  • 9. Providing Public Goods Questions to understand: 1.) How do you get people to pay for these goods then? 2.) How much Public Goods should be produced? 3.) What problems happen with producing Public goods?
  • 10. Providing Public Goods Questions to understand: 1.) How do you get people to pay for these goods then? 2.) How much public goods should be produced? 3.) What problems happen with producing Public goods?
  • 11. Taxes Where the money comes to pay for public goods
  • 12. Introduction to Taxes: 3.) Efficacy and Fairness of Taxes Three ways to view types of Taxes: I. Proportional Tax II. Progressive Tax III. Regressive Tax How do you get people to pay for these goods then? And add all the issues about it.
  • 13. Two principles: Equity vs. Efficiency 公平与效率 Efficacy and Fairness of Taxes 2.) Ability to Pay Principle: 1.) Benefits Principle: Those with greater ability to pay a tax should pay more tax. Those who benefit from public spending should bear the burden of the tax that pays for that spending. Who should pay for those public goods?
  • 14. Providing Public Goods Questions to understand: 1.) How do you get people to pay for these goods then? 2.) How much public goods should be produced? 3.) What problems happen with producing public goods?
  • 15. Cost-Benefit Analysis (CBA) Providing Public Goods How much Public Goods should be produced? - a study that compares the costs and benefits of providing a public good. - If the benefit of a public good exceeds or equals the cost of providing it, government should provide the good and pay for it with a tax if the private market doesn’t provide enough of it.
  • 16. Means an additional one, the measurement from one unit to the next. 最后的东西之一 Marginal Benefits VS. Marginal Costs 边际效益 针对 边际成本 (MB) (MC) If MB > MC = It is worth doing 这是值得的 If MB = MC = It may be worth doing “a wash” 收支平衡 If MB < MC = Not worth doing 这是不值得的 Also called Cost/Benefit analysis Marginal Thinking Remember this?
  • 17. Means an additional one, the measurement from one unit to the next. 最后的东西之一 Marginal Social Benefits VS. Marginal Social Costs 边际效益 针对 边际成本 (MB) (MC) If MSB > MSC = It is worth doing 这是值得的 If MSB = MSC = It may be worth doing “a wash” 收支平衡 If MSB < MSC = Not worth doing 这是不值得的 Also called Cost/Benefit analysis Marginal Thinking Just apply it to society as a whole.
  • 18. The benefit a public good provides is the value of its services. Because security lights in a common parking area are non-rival and non-excludable, they are a public good. Everyone consumes the same quantity of them. To find the economy-wide value of the security lights, we add together the marginal benefits of everyone who benefits from them. Marginal Social Benefit (MSB) of a Public Good Providing Public Goods Example with street lights:
  • 19. How many lamp posts to make? Find each person’s marginal benefit MB Q 1 2 3 4 5 6 70 60 50 40 30 20 10 MB Providing Public Goods Example with street lights:
  • 20. MB Q 1 2 3 4 5 6 70 60 50 40 30 20 10 MB How many lamp posts to make? Find each person’s marginal benefit Providing Public Goods Example with street lights:
  • 21. MB Q 1 2 3 4 5 6 70 60 50 40 30 20 10 MB How many lamp posts to make? Find each person’s marginal benefit Providing Public Goods Example with street lights:
  • 22. MB Q 1 2 3 4 5 6 70 60 50 40 30 20 10 MB How many lamp posts to make? Find each person’s marginal benefit Providing Public Goods Example with street lights:
  • 23. MB Q 1 2 3 4 5 6 70 60 50 40 30 20 10 MB MB MBMB Add them all up to equal MSB How many lamp posts to make? Providing Public Goods Example with street lights:
  • 24. MSB Q 1 2 3 4 5 6 250 200 175 150 125 100 75 MSB Add them all up to equal MSB How many lamp posts to make? Providing Public Goods Example with street lights:
  • 25. MSB Q 1 2 3 4 5 6 250 200 175 150 125 100 75 MSB Add them all up to equal MSB How many lamp posts to make? Providing Public Goods Example with street lights: Notice the vertical axis numbers have increased to show that this single line is all four lines combined
  • 26. MSB & MSC Q 1 2 3 4 5 6 250 200 175 150 125 100 75 MSB MSC = MSB MSC MSC = MSB = efficient amount of public goods to make How many lamp posts to make? Providing Public Goods Example with street lights:
  • 27. The Efficient Quantity of a Public Good? If MSB (MB) = MC, resources are used efficiently. If MC < MSB, resources can be used more efficiently by increasing the quantity produced. If MC > MSB, resources can be used more efficiently by decreasing the quantity produced. Providing Public Goods
  • 28. P Q MC MPB P Q MSC MSB P EQ P EQ Private goods Public goods So it’s the same idea, just add “society”
  • 29. Providing Public Goods Questions to understand: 1.) How do you get people to pay for these goods then? 2.) How much public goods should be produced? 3.) What problems happen with producing public goods?
  • 30. Cost Benefit Analysis How much is a life worth?
  • 31. Cost Benefit Analysis How much is a life worth? Exactly how many police SHOULD there be? And how will they be paid for?
  • 32. Cost Benefit Analysis How much is a life worth? Is it worth the marginal cost to have more firetrucks purchased by the government?
  • 33. Cost-Benefit Analysis (CBA) Providing Public Goods - a study that compares the costs and benefits of providing a public good. - CBA are imprecise, 不精确 so the efficient provision of public goods is more difficult than that of private goods. Problem: - Measuring the benefit is usually difficult and with the free rider issue. What problems happen with producing public goods?
  • 34. Providing Public Goods What problems happen with producing public goods? Asymmetric Information - Buyers and sellers don’t have equal information. One has more then the other and can cheat the other. 非对称信息
  • 35. Asymmetric Information 非对称信息 If one side knows more then the other side they can cheat them
  • 36. Providing Public Goods What problems happen with producing public goods? Asymmetric Information Moral Hazard - People who have asymmetric information, and the accuracy of the information they have cannot be monitored 监控 or challenged 挑战, so they have an incentive to behave differently. Who will police the police?
  • 37. Moral Hazard How many is enough? If it is your government job to make bridges, would you ever say, “Ok we have enough bridges now, I don’t need that job anymore.
  • 38. Check out China’s Ghost towns.
  • 39. Moral Hazard Who will police the police? If you rent a car and you don’t own it.
  • 40. Moral Hazard Who will police the police? Insurance保险 And you didn’t have to pay for anything if the car has a problem…
  • 41. Moral Hazard Would you treat it the same as if you owned it and was personally responsible?
  • 42. Moral Hazard Who will police the police? Cost Benefit Analysis How much is a life worth? Asymmetric Information 非对称信息
  • 43. Is it ok to be ignorant?无知
  • 44. Providing Public Goods What problems happen with producing public goods? Asymmetric Information Moral Hazard Rational Ignorance 理性 无知 - The decision not to acquire information because the marginal cost of doing so exceeds the marginal benefit.
  • 45. Providing Public Goods What problems happen with producing public goods? Why Government Is Large? Part of the reason why government is large is Inefficient overprovision of public goods Peoples’ rational ignorance Once a bureaucracy 官僚 gets established 既定, its goal of budget maximization combined with people’s rational ignorance explains why government takes a large proportion of total income.
  • 46. Classifying Goods and some Problems: 1.) Classification and Good Types 3.) Problems of the Non-Excludables 2.) Providing Public Goods
  • 47. Different kinds of goods with different problems For both Public Goods and Common Resources, Externalities happen because something of value has no price attached to it. So, private decisions about consumption and production can lead to an inefficient 低效 outcome. Problems of the Non-Excludables
  • 48. Why Markets don’t do a good job with these types: The good is not produced in the market, even if buyers collectively value the good higher than the cost of providing it. Public Goods have these qualities and therefore governments often have to produce them. Goods that are Non-excludable -You can’t stop someone else from using it, so you can’t make money off of it and thus are free to use. Goods that are Non-rivals - Since there is an infinite supply of these, it is difficult to control and a market with very few suppliers seems “natural” Result: Problems of the Non-Excludables
  • 49. -A person who enjoys the benefits of a good or service without paying for it. Because of the free-rider problem, the market would provide too small a quantity of a public good. To produce the efficient quantity, government action is required. Public Goods –The problem that some don’t pay Free Rider Problems of the Non-Excludables
  • 50. Cost Benefit Analysis How much is a life worth?
  • 51. Cost-Benefit Analysis (CBA) Providing Public Goods - a study that compares the costs and benefits of providing a public good. - CBA are imprecise, 不精确 so the efficient provision of public goods is more difficult than that of private goods. Problem: - Measuring the benefit is usually difficult and with the free rider issue. What problems happen with producing public goods?
  • 52. Moral Hazard Who will police the police? Cost Benefit Analysis How much is a life worth? Asymmetric Information 非对称信息
  • 53. Common resources have the biggest problem of them all Private goods Common Resource Natural Monopolies Public goods Excludable Nonexcludable Rival Nonrival Problems of the Non-Excludables
  • 54. - Since there is a limited supply of these, once they are gone there is no more. You can’t stop me from consuming the good, and more consumption by me means less of the good available for you. Why Markets don’t do a good job with these types: Goods that are Non-excludable -You can’t stop someone else from using it, so you can’t make money off of it and thus are free to use. Goods that are Non-rivals Result: Problems of the Non-Excludables
  • 55. - occurs when a user depletes the amount of the common resource available to others but does not take this cost into account when deciding how much to use the common resource. Common Resources –The Tragic Overuse Problem Overuse In simpler words: Your using too damn much stuff!!! Problems of the Non-Excludables
  • 56. Go watch this movie called “The Lorax” it’s a famous Dr. Seuss children’s book that show the main idea that is the problem.
  • 57. Common Resources –The Tragic Overuse Problem Overuse Tragedy of the Commons 公地悲剧 - It is the absence of incentives to prevent the overuse and depletion of a commonly owned resource. In the case of a common resource, the marginal social cost of my use of that resource is higher than my individual marginal cost Common resources left to the free market suffer from overuse. ***sustainable - 可持续发展 Problems of the Non-Excludables
  • 58. Examples – through the earth Suppose we have three privately owned farms and this upper right corner is owned by no one. An example…
  • 59. And each of these farmers have lots of sheep.
  • 60. Now, these sheep eat grass. The sheep can eat the grass on the farm owned by the farmer…
  • 61. Or…
  • 62. They could eat the grass on this empty land that no one owns. (It’s a free Common Resource!)
  • 63. What do you think would happen if all the farmers decide to take advantage of this?
  • 64. And what do you think would happen to the land itself?
  • 65. Land goes to hell right? And in the long run?
  • 66. All that is left is what the farmers started with the common resource totally destroyed.
  • 67. Amount Sustainability Tragedy of the Commons 公地悲剧 Sheep Grazing land Maximum sustainable amount Sustainability 可持续发展 Problems of the Non-Excludables
  • 68. Private goods = limited and to make them you need common resources Private goods Common Resource Natural Monopolies Public goods Excludable Nonexcludable Rival Nonrival Public goods = unlimited and to make them you need common resources Natural Monopolies = unlimited and to make them you need common resources Result: One big f@%ked up mess that has been passed down to you and it’s your turn to deal with it. Tragedy of the Commons 公地悲剧 Problems of the Non-Excludables
  • 71. Cost-Benefit Analysis (CBA) Providing Public Goods How much Public Goods should be produced? - a study that compares the costs and benefits of providing a public good.
  • 72. Means an additional one, the measurement from one unit to the next. 最后的东西之一 Marginal Benefits VS. Marginal Costs 边际效益 针对 边际成本 (MB) (MC) If MB > MC = It is worth doing 这是值得的 If MB = MC = It may be worth doing “a wash” 收支平衡 If MB < MC = Not worth doing 这是不值得的 Also called Cost/Benefit analysis Marginal Thinking
  • 73. Means an additional one, the measurement from one unit to the next. 最后的东西之一 Marginal Social Benefits VS. Marginal Social Costs 边际效益 针对 边际成本 (MB) (MC) If MSB > MSC = It is worth doing 这是值得的 If MSB = MSC = It may be worth doing “a wash” 收支平衡 If MSB < MSC = Not worth doing 这是不值得的 Also called Cost/Benefit analysis Marginal Thinking
  • 74. -A person who enjoys the benefits of a good or service without paying for it. Because of the free-rider problem, the market would provide too small a quantity of a public good. To produce the efficient quantity, government action is required. Public Goods –The problem that some don’t pay Good Types…a little more detail Free Rider
  • 75. Moral Hazard Who will police the police? Cost Benefit Analysis How much is a life worth? Asymmetric Information 非对称信息
  • 76. Common Resources –The Tragic Overuse Problem Overuse Tragedy of the Commons 公地悲剧 - It is the absence of incentives to prevent the overuse and depletion of a commonly owned resource. In the case of a common resource, the marginal social cost of my use of that resource is higher than my individual marginal cost Common resources left to the free market suffer from overuse. ***sustainable - 可持续发展 Problems of the Non-Excludables
  • 77. The end of part 2 Thanks 