Chapter 16: Public Choices and Public Goods Flashcards
Private choice
A decision that only has consequences for the person making it.
Public choice
A decision that has consequences for many people and perhaps for an entire society.
Three reasons while governments exist
- They establish and maintain property rights
- They provide nonmarket mechanisms for allocating scarce resources
- They implement arrangements that redistribute income and wealth.
Government failure
A situation in which government actions lead to inefficiency - to either underprovision or overprovision.
Political equilibrium
The choices of voters, firms, politicians and bureaucrats are all compatible and no group can see a way of improving its position by making a different choice.
Excludable goods
A good where it is possible to prevent someone from enjoying its benefits.
Nonexcludable goods
A good where it is impossible to prevent anyone from benefiting from it.
Rival
A good where one person’s use of it decreases the quantity available for someone else.
Nonrival
A good where one person’s use does not decrease the quantity available for someone else.
Private good
Both rival and excludable.
Public good
Both nonrival and nonexcludable.
Common resource
Rival and nonexcludable good.
Natural monopoly good
Nonrival and excludable good.
Mixed good
A private good, the production or consumption of which creates and externality.
Externality
A cost (external cost) or a benefit (external benefit) that arises from the production or consumption of a private good and that falls on someone other than its producer or consumer.
Negative externality
An externality that imposes a cost.
Positive externality
An externality that provides a benefit.
3 things public choices must be made to do
- Provide public goods and mixed goods
- Conserve common resources
- Regulate natural monopoly
Tragedy of the commons
When the market economy would overproduce while stocks last and underproduce as stocks run out.
Free rider
Someone who enjoys the benefits of a good or service without paying for it.
Free-rider problem
That the economy would provide an inefficiently small quantity of a public good.
Marginal social benefit from the public good would exceed its marginal social cost and a deadweight loss would arise.
Principle of minimum differentiation
The tendency for competitors to make themselves similar to appeal to the maximum number of clients or voters.
Private benefit
A benefit that the consumer of a good or service receives.
Marginal benefit
The benefit from an additional unit of a good or service.
Marginal private benefit
The benefit that the consumer of a good or service receives from an additional unit of it.
External benefit
The benefit that someone other than the consumer of the good or service receives.
Marginal external benefit
The benefit from an additional unit of a good or service that people other than its consumer enjoy.
Marginal social benefit
The marginal benefit enjoyed by society - by the consumer of a good or service (marginal private benefit) and by others (The marginal external benefit)
Marginal Social Benefit (MSB) =
Marginal (private) benefit + Marginal external benefit
Three devices governments can use to achieve a more efficient allocation of resources in the presence of external benefits
- Public production
- Private subsidies
- Vouchers
Public production
A service or good is produced by a public authority that receives its revenue from the government.
Subsidy
A payment that the government makes to private producers.
Voucher
A voucher is a token that the government provides to households, which they can use to buy specified goods or services.
