Not so Private Goods and Services

Production of Goods Requires Scarce Resources To produce an additional unit of one good, less of something else would be produced due to the allocation of resources If the satisfaction of the new good is greater than it is considered efficient to produce that unit (net gain)

Example Bushel of Wheat runs $6 Bushel of Corn runs $4 To grow wheat or corn one uses the same resources. In this case the added benefit of producing wheat over corn is $2 greater and so it is more efficient to produce.

Reminder Demand Curve Shows how much consumers value or are willing and able to pay for each additional unit of a good

Reminder Supply Curve Shows the minimum that producers are willing and able to accept to produce each additional unit.

Finding the Efficient Quantity $/unit Number of Units Supply Demand 30 20 10 $6 $12 $18

Added Value/Added Cost at 10 Units $18 is the added value at 10th unit $6 is the added cost Would it be efficient to produce this good?

Which would be effient to produce and which would not be efficient?

It is efficient to produce all units of a good for which the demand (added value) curve is above the supply (or added cost) curve. Efficient Quantity is where the value added=cost added

What is the efficient quantity in the graph below?

If the market were at equilibrium what would be the price and quantity produced?

Characteristics of Goods Rival A unit of the good cannot be consumed by more than one person at one time. Excludable People who do not pay for the good can be prevented from consuming it.

Rival Goods examples

excludable

Private Good Good or service whose use is both rival and excludable Most Goods are private goods Examples: bananas, cellphones, electricity, haircuts, fast-food, video games, auto repair, etc.

What if a good/service does not have these characteristics? Activity 11.1 Given 10 tokens each Box 1- each token earns 1 bonus poing Box 2- depends on how many tokens are put in by the entire class. Multiply total amount by 2 and evenly divide throughout the class. Eg. Box 2 = 30 >30x2=60/# students > bonus points

How Many? How many bonus points would each of you get if everyone in the class put all of his/her tokens in Box 1? How many bonus points would each of you get if everyone put all his/her tokens in Box 2?

Box 2 pays off twice as much as 1, Does that mean that Box 2 is the best choice for everyone? What would happen if one student put their tokens in box 1 and everyone else put theirs in box 2? There are advantages and disadvantages with both options

Fill out the slips

Add up the numbers Compare Maximum able to achieve (Box 2 times 2) to actual numbers

Why did some of you not put any in Box 2? Free Rider

Tokens-represent scarce resources Boxes-represent two types of goods that could be produced with the scarce resources Box 1-Private Good/Service Box 2-Public Good/Service (non-rival, non-excludable)

Activity 11.2 Complete as a group

Streetlights the public good Use is not rival (everyone can enjoy simultaneously) Use is not exclusive (even non-payers can enjoy)

Other Examples of Public Goods?

Not all government goods/services are Public Garbage Pickup Schools Water