Public Goods and Public Policy Promoting Competition Income Inequality Lesson 21 Sections 76,77,78

Private Goods and Others (76) Characteristics of Goods Private Good Excludable Rival in Consumption Public Good Non-excludable Nonrival in Consumption

Public Goods Markets can only supply private goods efficiently Free-Rider problem

Common Resources Non-excludable but rival in consumption Fishing/Hunting Overuse

Artificially Scarce Goods Excludable Nonrival in consumption Pay-per-view Cable services MMO

Promoting Competition (77) Anti-trust policy Sherman Antitrust Act of 1890 Illegal to make contracts, combinations or conspiracies to restrain interstate commerce Illegal to monopolize interstate commerce Clayton Antitrust Act of 1914 Price discrimination Anti-competitive practices Anti-competitive mergers and acquisitions Interlocking directorates Federal Trade Commission Act of 1914 Unfair or deceptive acts Price fixing Output restrictions Actions that prevent entry to market

Dealing With Natural Monopoly Marginal Cost Pricing Competitive firm price Subsidy probably required to operate Average Cost Pricing Produce at cost Subsidy not required Imperfect information

The Problem of Poverty (78) Trends in Poverty Poverty Threshold Poverty Rate Who are the Poor What Causes Poverty Consequences of Poverty

Economic Inequality Mean Household Income Median Household Income Average of all incomes: distorted by the top Median Household Income Half earn more, half earn less Gini Coefficient Number represents the distribution of income 0 is perfect equality, 1 is perfect inequality

Figure 78.2 Income Inequality Around the World Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

Anti-Poverty Programs Means Tested Benefits available only to qualified individuals In-Kind Benefits Non-monetary benefits like Medicaid, food stamps Social Security Effect of Programs Poverty greatly reduced especially among seniors

Table 78.3 Major U.S. Welfare State Programs, 2009 Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

Table 78.4 Effects of Taxes and Transfers on the Poverty Rate, 2008 Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

Debate Over Income Redistribution Should Government Redistribute Wealth? Are Social Welfare Programs Causing People Not to Work? Are Taxes Theft? Do Progressive Taxes Punish the Rich? Are Flat Taxes Fair?