Chapter 19

Question 1

Private goods, Common Resources, Club Goods & Public goods

Answer 1

Private goods:

Excludable & Rival

Must be purchased before consumption

Common Resources:

Non-excludable & rival

can be consumed by anyone but it’s availability diminishes

Club goods

Excludable & non-rival

Individuals can be prevented from consuming but their consumption does not reduce availability to others

Public goods

Non-excludable & Non-Rival

no one can be prevented from consuming & use doesn’t reduce availability to others

Question 2

Excludable/Non-Excludable

Answer 2

Excludable: people who don’t pay can easily be prevented from using the good

Nonexcludable: people who don’t pay can not be easily prevented from using the good

Question 3

Rival Non Rival

Answer 3

Rival: one person’s use reduces availability for everyone

Non Rival: One persons use does not reduce availability for everyone

Question 4

Government Solutions for Public Goods

Answer 4

Force beneficiaries to pay: forcing people to pay for public goods in the form of take that they normally would not want to pay for to better benefit everyone

Forced Rider: forcing people to pay for things they do not want (e.g. using my taxes to build a wall I don’t support)

Question 5

Market Solutions Public Goods

Answer 5

Advertisers: Television and radio are public goods (non-exclusive & non rivalry) funded by bystanders who benefit from viewers wanting to buy their products (advertisers)

So effective that it causes services that easily be excludable to be non-excludable (Google can make profit while providing services for free)

Question 6

Public Goods

Answer 6

Non-excludable & Non-Rival

No one can be prevented from consuming them & use doesn’t reduce availability to others

It’s difficult to get people to voluntarily pay for them so markets will often underprovide them

Free riders: Someone who enjoys the benefits of a public good without paying the costs

Question 7

Common Resources & problem

Answer 7

Non-excludable but Rival

You can’t stop someone from accessing the resource but using the resources prevents someone else from having access

Tragedy of the Commons: Common resources overused & undermaintained

e.g. ocean fish, fishers racing to get all the fish so they disappear quickly. If a fisher decides to be responsible & not overfish, another will just take his produce not leaving any for the future. Responsibility is not beneficial.

Question 8

Solution for the tragedy of commons

Answer 8

Individual transferable quotas: government allowances that only let people (e.g. fishers) take a given amount of the resource (e.g. fish)

• New Zealand issued ITQS on fish specific to region & population was replenished over time
• BUT difficult to coordinate worldwide
• Also applies to pollution (like tradable allowance)

Question 9

Property Rights (& 2 examples)

Answer 9

• Institution that uses self-interest to avoid the tragedy of the commons
• Creates incentives for owners to take care of resources because they make a profit when they are well maintained
• Maintaining common goods w/o property rights only produces external benefits not internal benefits so no one does it
• E.g. African elephant dying populations
  
  • Countries w no property rights -31%
  • Countries w local property rights +34%
  • Countries w national Property rights +56%
• Mao Communist China
  
  • Made all food a common good & started a famine
  • Villagers started property rights & had bountiful harvest