6.2: Public and Private Goods (copy)
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
Non-exclusionary: Cannot Exclude People From Enjoying The Benefits, Even If They Don’t Pay
- Eg. National Defense
Shared Consumption (non-rival): One Person’s Consumption Of A Good Does Not Reduce Its Usefulness To Others
- 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?
Socially Optimal Price
- P=MC (allocative Efficiency)
Fair-return Price
- Normal Profit
Taxes
Tax: A Mandatory Payment Made To The Government To Cover Costs Of Governing
Two Purposes
Finance Government Operations
- Public Goods
Influence Economic Behavior Of Firms And Individuals I Hate British People
Three Types Of Taxes
- Progressive Taxes — Take Larger Percentages Of Income From Higher Income Groups
- Proportional Taxes (flat Rate) — Takes The Same Percentage Of Income From All Income Groups
- Regressive Taxes — Takes A Larger Percentage From Low Income Groups (takes More From Poor People)