 Group Quiz Thursday  Homework #2 Due Next Thursday  Exam #1 Next Thursday  Writing Assignment Due Oct. 27th

MB, MC of Pollution Quantity of Pollution in Tons Marginal Cost Marginal Benefit Socially Efficient Level of Pollution

Price of Good Quantity of Good Marginal Private Cost Demand Q2 Marginal Social Cost Q1 P* P Ps2

Excludable Non-Excludable Non-Rivalrous Rivalrous Club Goods Public Goods Common Goods Private Goods Fish, hunting game, grazing land National defense, lighthouses, clean air, information goods Food, clothing, toys, cars Satellite television, Golf courses, Cinemas

 When a resource is non-excludable, individuals act independently and rationally consume with their own self- interest in mind. Ultimately, this will deplete the resource.

 Public Goods Non-excludable and non-rivalrous (indivisble)  Biological diversity  Genetic diversity  Charming landscapes  Intellectual property? What is the efficient level of a public good?  Marginal cost = marginal benefits.

 Public Goods Problem Suppose there are two people in a community who benefit from river preservation and the biodiversity created by it. Individual A Individual B Total Benefit P=10-2q P=8-2q 10

 Public Goods Problem How much would be produced if individual A were to pay for the river preservation? Would individual B, then pay also for any river preservation?

 Public Goods Problem What are the community’s total benefits from river preservation? Suppose the marginal cost of river preservation is MC=2q. What is the socially optimal level of river preservation? How much would each individual pay? Why might river preservation be difficult to implement?

 Typically, the pricing system requires charging a different price to each consumer. Consumers may not choose to reveal the strength of their preferences. Due to non-excludability consumers still receive the benefits, giving them more reason to not reveal their preferences. This diminishes the incentive to contribute.

 Public Goods Typically the market undersupplies public goods. Why? Free-riders –someone who derives benefits from a commodity without contributing to its supply.

 Group Quiz Next Thursday  Writing Assignment Due Oct. 27th