Public goods and Common resources CK hapter 11
Public Goods and Common Resources Chapter 11
The best things in life are free Free goods provide a special challenge for economic analySIs o Most goods in our economy are allocated in markets °… for these goods,, prices are the signals that guide the decisions of buyers and sellers When goods are available free of charge the market forces that normally allocate resources in our economy are absent
“The best things in life are free. . .” • Free goods provide a special challenge for economic analysis • Most goods in our economy are allocated in markets… • …for these goods, prices are the signals that guide the decisions of buyers and sellers. • When goods are available free of charge, the market forces that normally allocate resources in our economy are absent
The best things in life are free o When a good does not have a price attached to it, private markets cannot ensure that the good is produced and consumed in the proper amounts e In such cases, government policy can potentially remedy the market failure that results, and raise economic well-being
• When a good does not have a price attached to it, private markets cannot ensure that the good is produced and consumed in the proper amounts. • In such cases, government policy can potentially remedy the market failure that results, and raise economic well-being. “The best things in life are free. .
The different Kinds of goods When thinking about the various goods in the economy, it is useful to group them according to two characteristics: Is the good excludable? o Is the good rival?
The Different Kinds of Goods • When thinking about the various goods in the economy, it is useful to group them according to two characteristics: • Is the good excludable? • Is the good rival?
The different Kinds of goods Excludability People can be prevented from enjoying the g ooa Laws recognize and enforce private proper rights ● Rivalness One persons use of the good diminishes another persons enjoyment of it
• Excludability – People can be prevented from enjoying the good. – Laws recognize and enforce private property rights. • Rivalness – One person’s use of the good diminishes another person’s enjoyment of it. The Different Kinds of Goods