P RIVATE GOODS VS. PUBLIC GOODS Unit Three: Microeconomics

B ELL R INGER List 5 types of goods and services the market (private sector) provides List 3 goods or services provided by the government Why do you think the government provides certain goods/services and not others?

G OODS THAT YOU CAN ’ T STOP PEOPLE WHO DON ’ T PAY FROM ENJOYING ARE GENERALLY PROVIDED BY THE GOVERNMENT G OODS YOU CAN STOP PEOPLE WHO DON ’ T PAY FROM ENJOYING ARE PROVIDED BY THE MARKET Does it rival in consumption or not rival in consumption? Is it excludable or non-excludable?

A private good rivals in consumption -- one person’s use of it diminishes another person’s use. Private Goods

Public goods do not rival in consumption, one person’s use of it DOES NOT diminishes others’ use. Public Good

1. An excludable public good is one in which a person can be prevented from using it. Two types of public Goods

2. With a non-excludable public good individuals cannot be excluded from consuming Second type of public Goods

W HY WOULD I PAY FOR A NON - EXCLUDABLE GOOD ? Non excludable goods are subject to free riders A free rider is a person who receives the benefits of a good without paying for it Have YOU ever been a free rider?

C OMMON R ESOURCES Common resources are resources that rival in consumption but are not excludable Non-excludable resources leads to the “tragedy of the commons”

D IFFERENT K INDS OF G OODS Private goods : excludable, rival in consumption Excludable Public goods: excludable, don’t rival in consumption Non-excludable Public goods : non-excludable, don’t rival

A RE ALL THE COSTS OF MAKING THE GOOD INCLUDED IN THE PRICE ? Externalities

E XTERNALITIES An externality is an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume

P OSITIVE E XTERNALITIES A positive externality is a beneficial side effect of an action that is felt by other

N EGATIVE E XTERNALITIES A negative externality is an adverse side effect of an act that is felt by others

Are all of the costs of a business “paid” by the business? ( stinging-stench_n_ html)

W HAT CAN THE GOVERNMENT DO ABOUT NEGATIVE EXTERNALITIES ? Possible solutions to externalities