Chapter 20 - Public goods and externalities. In this chapter students will be able to: Explain what economists mean by the term public goods and the free rider-rider problem, describe the efficiency in the provision and distribution of a public good, define external benefits and external costs and show how their presence results in nonoptimal output levels for goods characterized by such aspects,. | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 20: Public Goods and Externalities Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Explain what economists mean by the term public goods and the free rider-rider problem. Describe the efficiency in the provision and distribution of a public good. Define external benefits and external costs and show how their presence results in nonoptimal output levels for goods characterized by such aspects. (continued) Learning Objectives (continued) Show how clearly defined and enforced property rights can resolve externality problems and thereby ensure an efficient outcome. Demonstrate how air pollution can more efficiently be controlled through the establishment of an overall industry pollution target and the assignment of tradable emissions permits to the industry's firms. WHAT ARE PUBLIC GOODS? Explain what economists mean by the | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 20: Public Goods and Externalities Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Explain what economists mean by the term public goods and the free rider-rider problem. Describe the efficiency in the provision and distribution of a public good. Define external benefits and external costs and show how their presence results in nonoptimal output levels for goods characterized by such aspects. (continued) Learning Objectives (continued) Show how clearly defined and enforced property rights can resolve externality problems and thereby ensure an efficient outcome. Demonstrate how air pollution can more efficiently be controlled through the establishment of an overall industry pollution target and the assignment of tradable emissions permits to the industry's firms. WHAT ARE PUBLIC GOODS? Explain what economists mean by the term public goods and the free rider-rider problem. Public Goods and Externalities Public goods – those goods that benefit all consumers Externalities – the harmful or beneficial side effects of market activities that are not fully borne or realized by market participants What Are Public Goods? Characteristics: Nonrival in consumption – a condition in which a good with a given level of production, if consumed by one person, can also be consumed by others Nonexclusion – a condition in which confining a good’s benefits, once produced, to selected persons is impossible or prohibitively costly Free-Rider Problem A consumer who has an incentive to underestimate the value of a good in order to secure its benefits at a lower, or zero, cost As the group size increases, it is more likely that everyone will behave like a free rider, and the public good will not be provided. EFFICIENCY IN THE PROVISION OF A PUBLIC GOOD Describe the efficiency in the provision and distribution of
