Private Goods, Common Resources, and Externalities

Rivalry in goods asks if....

the supply of the good is limited; or is the number of people who may consume the good changed if you consume it

Excludability in goods as if...

everyone is free to consume the good or is the good limited to people who exchange something for it

Rival good

a good where only a limited number of people can consume it

Non-rival good

a good where the supply is "unlimited" and one person's consumption has no effect on the ability of others to consume the same good

Excludable good

a good where consumption is limited to people who can pay for it

Non-excludable good

a good where everyone can consume it without needing to exchange anything for it

Private good

a good which is excludable and rival

Common Resource

a good which is rival and non-excludable

Club good

a good which is non-rival and excludable; because price is greater than the marginal cost, the consumption of the good is sufficiently low

Public Good

a good which is non-rival and non-excludable

Hardin and the tragedy of the commons

without intervention, we consume common resources to extinction due to lack of individual property rights and economic incentives that encourage consumption

Ostrum view

optimal outcomes are possible with cooperation and shared property rights; this is most likely to work with a small number of similar beneficiaries who control access to the resource

Club goods are considered to be a type of monopsony because...

the supplier charges more than is necessary because they have the power to exclude people

Free-rider problem

rational response of public goods; someone who enjoys the benefits of a good without paying; enjoying a positive externality

Public goods are often.... or provided by the government due to...

subsidized; the free-rider problem and positive externalities

Externality

a side effect of an activity that affects bystanders whose interests aren't taken into account

Failing to account for externalities leads to.... as...

market failure; you're missing out on the social benefits/costs that could possibly be achieved

Market failure

when the market, on its own, does not allocate resources efficiently in a wat that balances social costs and benefits; optimal outcome is not achieved

Four types of market failures include

(1) positive externalities, (2) negative externalities, (3) public goods, and (4) common resources

Positive externalities

when bystanders, not involved in the production or consumption of the good or service, benefit from others consumption or production

marginal private benefit

the benefit from one extra good enjoyed by the buyer

external benefit

a benefit received by bystanders

marginal external benefit

the additional extra benefit from one more unit to bystanders

marginal social benefit

all marginal benefits, no matter who gets them

Marginal social benefit is calculated by

marginal private benefit plus marginal external benefit

In a perfect market marginal private benefit is...

equal to marginal social benefit because the only person who benefits is the person who consumes the good

Examples of goods with positive externalities

vaccines, education, and flowers

When graphing it is important to remember that both.... and .... are ... values

marginal external benefit; marginal external costs; estimated

Negative externalities

when bystanders, not involved in the production or consumption of the good or service, is hurt by others consumption of the good or service

marginal private cost

the extra cost from one extra unit paid for by the seller

external cost

a cost imposed on bystanders

marginal external cost

the extra external cost from one extra unit

marginal social costs

all marginal costs, no matter who pays them

Marginal social cost is calculated by

adding marginal external costs and marginal private costs

When we have negative externalities the market..

produces too much which creates a negative economic surplus

When we have positive externalities the market...

produces too little which means we can gain more by producing more

Positive externalities are shown using

the demand curve as it affect the amount that people need in the market

Negative externalities are shown using

the supply curve as it affects the actual costs incurred in the market by suppliers