Public Goods

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Public Goods
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Public Goods

• What are the characteristics of private goods?
• What are the characteristics of public goods?
• Nonrivalry
• one individuals consumption does not affect the
  consumption by another individual
• Nonexcludability
• not feasible (too costly) to exclude anyone from
  consuming the good
• Examples

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Optimal Provision of a Public Good
per unit
MBb
MC
MBa
quantity of x
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Optimal Provision of a Public Good
per unit
MBb
SMB
MC
MBa
quantity of x
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Optimal Provision of a Public Good
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The Optimal Provision of a Public Good

• Optimal Provision
• Q--where SMBMC
• Same as MSB MSC
• Charging a price (tax) equal to the goods
  marginal benefit to the individual
• The Lindahl Tax
• What is the problem with this?
• The Free Rider Problem
• Compulsory Participation and Finance