Private goods can be provided by the public sector These are called publicly provided private goos.” Key criteria: is the good rival and excludable? Public housing is rival (one family consumes one apartment) and excludable (easy to prevent consumption)
6 Private goods can be provided by the public sector • These are called “publicly provided private goods.” • Key criteria: is the good rival and excludable? • Public housing is rival (one family consumes one apartment) and excludable (easy to prevent consumption)
Efficient provision of private goods Derivation of aggregate demand Each person,s demand curve represents the willingness-to-pay for an additional unit of a good Private good: holding P constant, add together individual quantities to get Q Horizonta summation
7 Efficient provision of private goods • Derivation of aggregate demand • Each person’s demand curve represents the willingness-to-pay for an additional unit of a good. • Private good: holding P constant, add together individual quantities to get Q. • Horizontal summation
Figure 4.1 +E D D f per year f per year f per year
Figure 4.1
Equilibrium in private goods market Equilibrium where supply curve intersects aggregate demand curve Everyone pays the same price, P Individuals consume different quantities · Pareto efficient
9 Equilibrium in private goods market • Equilibrium where supply curve intersects aggregate demand curve. • Everyone pays the same price, P. • Individuals consume different quantities, Q. • Pareto efficient
Efficient provision of public goods Consider a fireworks display as a public good it is nonrival and nonexcludable Bigger displays give higher benefit Public good: holding Q constant, add together individual willingness-to-pay to get P · Vertical summation 10
10 Efficient provision of public goods • Consider a fireworks display as a public good – it is nonrival and nonexcludable. • Bigger displays give higher benefit. • Public good: holding Q constant, add together individual willingness-to-pay to get P. • Vertical summation