Public Goods & Common Resources Flashcards
Types of goods
- Common resources
- Private goods
- Public goods
- Club goods
Public good
Non rival, non excludable
Challenges:
-insufficient supply & investment (because others don’t pay for good)
-free rider
- insufficient number of payers
Common good
Rivalrous & non excludable
Problems:
-tragedy of the commons
-free riders
-overuse
-resource stock externality
Resources stock externality
Insufficient resource allocation from overexploitation. Depletable, symmetric or asymmetric & can be trans- boundary
Optimal production of a public good
MC= marginal SOCIAL benefit
Free rider
Someone who receives the benefit without paying for the cost
Congestion
When demand exceeds supply.
-On cost curve, this is the point where marginal private cost diverges from marginal social cost
-Can happen in: public, common & club goods
Total external cost on congestion graph
Triangle from x axis effort
Types of technological externalities
- Resource stock externality
- Congestion
- public good
Public good externality
Indirect effects of consuming or producing the public good.
Pareto inefficiency
When it is possible to make at least one individual better off without making anyone worse off. (There are still opportunities to allocate resources in a way that makes someone better off without harming anyone)
A private allocation of a public good is a pareto inefficiency
Club good
Excludable & non rival
Private good
Excludable & rival
