Ch. 11 AP Microeconomics ( Public Goods and Common Resources)

Common Resources

Goods that are rival in consumption but not excludable, One one person uses the good it does diminish the ability of another person to use it, but you can't stop people from taking the good. For example: fish in a pond, enviromental resources, etc,.

Public Goods

Individually and socially desirable goods that are non-excludable and non-rival in consumption, such as national defense, tornado sirens,etc,.

Excludability

The property of a good whereby a person can be prevented from using it. (For example clothing is , while National Defense is not).

Rival in Consumption

The property of a good whereby one person's use diminishes other people's use. (For example congested roads are, while uncongested toll roads are not).

Private Goods

Goods that are both excludable and rival in consumption, most Goods in economy are this. For example : Ice Cream, Clothing, Shoes , Congested Toll Roads.

Free rider

A person who receives the benefit of a good but avoids paying for it, happens when goods are public. Leads to a market failure.

Free rider problem

The problem faced by unions and other special interest groups when people do not join because they can benefit from the group's activities without officially joining(The groups activity is a pubic good). The bigger the group, the more serious the problem. Can lead to a severe market failure. Gov't can remedy this problem

National Defense

The classic example of a public good. It is non-excludable( no one is prevented from enjoying it in the nation state). It is also non-rival in consumption (the benefit of increased protection does not diminish someone else's benefit).

Welfare System

Once called "Aid to Families With Dependent Children" now called "Temporary Assistance for Needy Families" . Is a classic example of a public good. One person's enjoyment of other people living in a society without poverty would not reduce anyones enjoyment of it(non-rival in consumption), also once poverty would be eliminated, no one can be prevented from taking pleasure in this fact. (Reason why it is IMPOSSIBLE for the private markets to resolve this, and Gov't is needed.

Cost benefit analysis

A study that compares the costs and benefits to society of providing a public good. Helps gov't decide which public goods to provide and in what quantities. When choosing between alternatives, you must make sure that values are in the same units.

Tragedy of the Commons

A parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole, Leads to a depletion or degradation of a potentially renewable resource to which people have free and unmanaged access, in other words social and private incentives differ.

Enclosure movement

The process of consolidating small landholdings into a smaller number of larger farms in England during the eighteenth century. Reduced the tragedy of the Commons by turning the grounds from common resources into private goods.