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Lecture Principles of economics - Chapter 14: Public goods and tax policy

This chapter focuses on the economics of government spending and tax policy. This is the third of three chapters on the Economics of Public Policy; all three chapters apply the tools developed in Chapters 1 through 12 to a series of public policy issues. | Chapter 14 Public Goods and Tax Policy McGraw-Hill/Irwin Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved. Learning Objectives Use the concepts of rivalry and excludability to distinguish among private goods, public goods, collective goods, and common goods Show how economic concepts can be used to find the optimal quantity of a public good and describe the ways in which private firms can supply public goods Analyze the types of efficiencies and inefficiencies that are associated with provision of a public good Discuss the criteria that should be applied to taxation to promote efficiency Government Is Unique Government is the only organization with the power to compel actions Taxes Military service Imprison people All other institutions – family, business, charitable organizations, etc. – rely on voluntary transactions Government decisions can be analyzed using economic principles Public Goods Public good is a good that is both nonrival and nonexcludable A . | Chapter 14 Public Goods and Tax Policy McGraw-Hill/Irwin Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved. Learning Objectives Use the concepts of rivalry and excludability to distinguish among private goods, public goods, collective goods, and common goods Show how economic concepts can be used to find the optimal quantity of a public good and describe the ways in which private firms can supply public goods Analyze the types of efficiencies and inefficiencies that are associated with provision of a public good Discuss the criteria that should be applied to taxation to promote efficiency Government Is Unique Government is the only organization with the power to compel actions Taxes Military service Imprison people All other institutions – family, business, charitable organizations, etc. – rely on voluntary transactions Government decisions can be analyzed using economic principles Public Goods Public good is a good that is both nonrival and nonexcludable A nonrival good is one whose consumption by one person does not diminish its availability to others National defense ■ Economics lectures A non-excludable good is one that is difficult or costly to exclude non-payers from consuming Over-the-air broadcasts ■ Fireworks displays A pure public good is, to a high degree, both nonrival and nonexcludable Public Goods and Government Pure public goods are provided by government Cost of production are difficult to recover directly Free-rider problem MC of public goods is zero Charging for them reduces total surplus Public Goods and Government A collective good (e.g. HBO) is a good or service that, to at least some degree, is nonrival but excludable Sometimes provided by government A good is a pure private good if Non-payers can easily be excluded and Each unit consumed by one person means one less unit available for others Public Goods and Government A pure commons good is a rival good that is nonexcludable Results in a tragedy of the commons Fish in .