PRIVATE GOODS VS PUBLIC GOODS Unit Three Microeconomics

PRIVATE GOODS VS. PUBLIC GOODS Unit Three: Microeconomics

BELL RINGER List 5 types of goods and services the market (private sector) provides List 3 goods or services provided by the government Why do you think the government provides certain goods/services and not others?

GOODS THAT YOU CAN’T STOP PEOPLE WHO DON’T PAY FROM ENJOYING ARE GENERALLY PROVIDED BY THE GOVERNMENT GOODS YOU CAN STOP PEOPLE WHO DON’T PAY FROM ENJOYING ARE PROVIDED BY THE MARKET Does it rival in consumption or not rival in consumption? Is it excludable or non-excludable?

Private Goods A private good rivals in consumption -- one person’s use of it diminishes another person’s use.

Public Good Public goods do not rival in consumption, one person’s use of it DOES NOT diminishes others’ use.

Two types of public Goods 1. An excludable public good is one in which a person can be prevented from using it.

Second type of public Goods 2. With a non-excludable public good individuals cannot be excluded from consuming

http: //economicsoftheoffice. com/all/? id=32

WHY WOULD I PAY FOR A NONEXCLUDABLE GOOD? Non excludable goods are subject to free riders A free rider is a person who receives the benefits of a good without paying for it Have YOU ever been a free rider?

COMMON RESOURCES Common resources are resources that rival in consumption but are not excludable Non-excludable resources leads to the “tragedy of the commons” John Stossel video of the commons

DIFFERENT KINDS OF GOODS Private goods: excludable, rival in consumption Excludable Public goods: rival in consumption Non-excludable Public goods: non-excludable, don’t rival excludable, don’t

ARE ALL THE COSTS OF MAKING THE GOOD INCLUDED IN THE PRICE? Externalities

EXTERNALITIES An externality is an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume

POSITIVE EXTERNALITIES A positive externality is a beneficial side effect of an action that is felt by other

NEGATIVE EXTERNALITIES A negative externality is an adverse side effect of an act that is felt by others

Are all of the costs of a business “paid” by the business? (http: //www. huffingtonpost. com/2013/10/29/sriracha-odor-lawsuit-stingingstench_n_4172997. html)

WHAT CAN THE GOVERNMENT DO ABOUT NEGATIVE EXTERNALITIES? Possible solutions to externalities