Chapter 19 - Public Goods and Common Resources

Question 1

What are two types of goods that are subject to market failure?

Answer 1

common resources (overconsumed)

public goods (undersupplied)

Question 2

What is an excludable good?

Answer 2

makes it possible for sellers to prevent its use by those who have not paid for it.

“use it up”

Question 3

What is a rival in consumption good?

Answer 3

one person’s consumption prevents or decreases others’ ability to consume it.
eg. rhino horns (when you use it, no one else can use it)

Question 4

What are private goods?

Answer 4

both excludable and rival

eg. plane tickets ( i bought it so you can’t have it and you can’t buy it because i took it?)

Question 5

What are public goods?

Answer 5

neither excludable or rival

eg. traffic lights

Question 6

What are common resources?

Answer 6

non-excludable but are rival

eg. forests, wildlife

Question 7

What are artificially scarce goods?

Answer 7

excludable but not rivals

eg. pay-per-view movies

Question 8

What is the free-rider problem?

Answer 8

occurs when someone decides to not pay for a good and enjoys a “free ride” from those that have paid

eg. public transport, teamwork, roommates

• public goods are non-excludable therefore suffer from the free rider problem
• leads to undersupply due to a loss of revenue

Question 9

What is the tragedy of commons?

Answer 9

the depletion of a common resource due to individually rational (not necessary to pay) but collectively inefficient (using a common resource imposes a negative externality on others) overconsumption

• non-excludability causes demand to be higher than if people had to pay for what they consumed

Question 10

Social norms

Answer 10

help rebalance the trade-off by imposing social costs on people who break the “rules” of good behaviour

• social disapproval carries a higher cost in places where people know each other and will interact with each other in the future
• imposes social costs on those who break the “rules” of good behaviour

Question 11

Government Interventions

Answer 11

Bans and Quotas: often fail in situations where it is difficult or costly for authorities to monitor and punish rule breakers

Provision: the gvmt supplies the efficient quantity which is the one at which marginal social benefit equals the marginal social cost

• who will pay?
• what is the right amount?

Question 12

Property rights

Answer 12

helps introduce excludability and assign responsibility for costs and benefits; the public aspect helps counteract remaining externalities