Topic 11- Public Choices and Public Goods Flashcards
Public Choice
A choice that has consequences for a LOT of people (maybe even society)
taxes, trade, spending
Role of governments
Property rights
allocation of scarce resources (non market)
wealth re-distribution
Government Failure
Government failure is a situation in which government actions lead
to inefficiency.
overprovision or under provision.
Four decision makers in political marketplace
Voters
Politicians
Firms
Bureaucrats
relaitonships in political marketplace
Voters vote
voters/firms support financially
govts supply policies, to draw votes
bureaucrats make it happen
Bureaucrats
Bureaucrats try to get the biggest
possible budget for their
departments and provide public
goods and services
Public Good
non excludable and non rival
Two determinnants of public good
Excludable/Non-Excludable
Rival/Non-Rival
Excludable good
Only people who pay enjoy its benefits
private police
Non-excludable good
People who dont pay also enjoy benefits
police services
Rival Good
one persons use of it decreases amount available to other
eating a fish
Non-Rival good
one persons use does not decrease anothers abilitiy to use it
watching tv
Excludable and rival in consumption?
Private good!
Food/cloth
pay to enjoy+ using it decreases it for others
Excludable and non rival
Club good
like race car events
pay to enjoy+ using it does not decrease abailability for others
Non excludable and non rival
Public good
libraries
dont pay to use and using it doesnt reduce it for others
Non excludable and rival
Common Resource
fishing
FREE To use but using it reduces others chances
What are amrkets good at providing efficient levels of?
Private goods! because one buyer one consumer
Why are markets not good at providing efficient levels of other good types?
-people can free ride public goods, dont need to pay
-People overconsume common reosurces
-pROFIT MAXIization too hard bc too little people enjoyin g a club good
Club good also called
Quasi public good
Free rider problem
for public goods people dont feel incentive to pay so too much benefit not enough cost
firework show
How do governments solve free rider problem?
They add it as a corrective tax
How to calculate market demand for private good
how to calculate market demand for a public good
Add up the individual demand of each person! HORIZONTALLY!!!!!!
ADD UP THE INDIVDUAL DEMAND CURVES OF EACH PERSON VERTICALLY
Difference between demadn curve of a private good and public good
Value of private good is the amount that ONE customer is willing to pay for one more unit
Value of public good is the amount that all customers are willing to pay for one more unit of it
how to determine the marginal social cost of public good
SAME AS PRIVATE GOOD
MSC= MC +MARGINAL EXTERA COST
Cost-benefit analysis - a study that compares the costs and benefits
to society of providing a public good
Cost-benefit analysis - a study that compares the costs and benefits
to society of providing a public good
Why si cost benefit analysis hard to determine
why woul du tell the truth to a questionare lol?
tragedy of the commons
-externality type
-explain
This can be thought of as a negative externality
the common resource tending to be overused from the standpoint of
society as a whole
how is tragedy of the commons depicted
Shifting up of the supply curve )MARGINAL SOCIAL COST METHOD)
creates deadweight loss
Source of tragedy of the commons?
Same as negativ externality
-lack of property rights
-lack of laws
social incentive: to protect the good
private incentive: to make money
THESE ARE DIFFERENT!
solution to tragedy of commons
FIN!
enforcing strong community norms and traditions
legal restrictions through taxes (internalizing the externality) or quotas on production
turning the common nesource to a private good (offered protection)
Why does the socially efficient outcome for a public good not occur naturally in the market
The market operates on making everyones marginal benefit=marginal cost
however marginal benefit is not cacluated the same way for public goods as they are funded by governments, to calculate the marginal social beenfit you have to add up the individual demand points vertically!!!!
Margiinal social beenfit of a public good formula
Marginal benefit to person a+ Marginal benefit for person b
3 types of public goods
- national defnese
- basic research
- fighting poverty
Examples of common resources
Uncongested roads
Wildlife
Clean air
Why do governmetns try to prevent this misuse of common resources
To prevent overconsumption and to preserve
How to calculate the deadweight loss from overfishing/negative externality
draw a line depicting the MARGINAL SOCIALL COST!!! higher than old cost curve
drop a line down that goes directly through the inefficient market equilibrium
the size of the triangle wherein marginal social cost is greater than the market equilibrium is DEADWEIGHT LOSS
Difference in the value of public goods and value of private goods to consumers
private good: maximum
amount that ONE consumer is willing to pay for
one more unit of it.
public good: maximum
amount that ALLLLLLLLLLL the consumers are willing to
pay for one more unit of it
