Public goods Macro 2014

Group Assignment Due midnight on Friday 1/24 by email

Create a youtube vide on the following question:

1. Why do you think the government is the only builder of roads, armies or street lights? And do you think it

does a good job at providing these items?

Everyone gets the same grade

Problems with assignment?

• Strategy?

• Incentives?

Brainstorm at your tables• 3 + goods that if you consume it, your friends

can’t consume it at the same time

• 1.5 + goods that if you consume it, your friends are unaffected by your consumption

Private Goods• Rivaled consumption

• A person’s consumption affects others’ consumption

• Excludable

• Firms can exclude people who don’t pay

Public Goods• Goods that are both non-excludable and

non-rivaled in consumption

Free Rider Problem• Free Rider – a person who does not pay for,

but benefits from a public good

How does society pay for public goods?

TaxesUser fees

Private GoodsFor example: food

Common GoodsEX: Open ocean fishing

Club goodsEX: Golf Course, movie theatre

Public goodsEX: National DefenseStreet lights

Excludable? Rivaled Consp.?

Excludable? Rivaled Consp.?

Excludable? Rivaled Consp.?

Excludable? Rivaled Consp.?

Excludable? Rivaled Consp.?

AP question

1. A pure public good is a good that is

a) Provided efficiently by markets

b) Rivalrous and excludable in consumption

c) Nonrivalrous and excludable in consumption

d) Nonrivalrous and nonexcludeable in consumption

e) Rivalrous and nonexcludable in consumption

AP question

1. Which of the following would fit the definition of a public good?

a) Broadcast FM Radio

b) Movie Theater tickets

c) Submarine sandwiches

d) Medical insurance

e) Cable television