6.2: Public and Private Goods

Public V. Private Goods

  • Public Sector: The Part Of The Economy That Is Primarily Controlled By The Government
  • Private Sector: The Part Of The Economy That Is Run By Private Individuals And Companies That Seek Profit
  • Public Goods   * Must Exist Because It’s Impractical For The Free-market To Provide These Goods Because There Is Little Opportunity To Earn Profit   * This Is Due To The Free-rider Problem     * Free Rider: An Individual That Benefits From Something Without Paying For It   * Free Riders Keep Firms From Making Profits; If Left To The Free Market, Essential Services Would Be Under Produced
Definition Of Public Goods
  • Public Goods Have Two Criteria

     1. Non-exclusionary: Cannot Exclude People From Enjoying The Benefits, Even If They Don’t Pay

           1. Eg. National Defense   2. Shared Consumption (non-rival): One Person’s Consumption Of A Good Does Not Reduce Its Usefulness To Others

           1. Eg. City Parks

Antitrust Laws

  • Antitrust Law: A Law Designed To Prevent Monopolies And Promote Competition
  • Monopolies Are Market Failures Because They Destroy Competition
Regulating Monopolies
  • Reasoning: Keep Prices Low, Make Monopolies Efficient
  • Method: Price Ceilings   * Where Should Price Ceilings Be Placed?

     1. Socially Optimal Price

           1. P=MC (allocative Efficiency)   2. Fair-return Price

           1. Normal Profit

Taxes

  • Tax: A Mandatory Payment Made To The Government To Cover Costs Of Governing
  • Two Purposes

     1. Finance Government Operations

           1. Public Goods   2. Influence Economic Behavior Of Firms And Individuals I Hate British People

Three Types Of Taxes
  1. Progressive Taxes — Take Larger Percentages Of Income From Higher Income Groups
  2. Proportional Taxes (flat Rate) — Takes The Same Percentage Of Income From All Income Groups
  3. Regressive Taxes — Takes A Larger Percentage From Low Income Groups (takes More From Poor People)

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