1. Mr. Bernstein Module 76: Public Goods January 14, 2014
AP Economics
Mr. Bernstein
Module 76:
Public Goods
January 14, 2014

2. AP Economics Mr. Bernstein
Public vs Private Goods
Private Goods
Excludable - Suppliers can prevent those who don’t pay from consuming
Rival – Cannot be consumed by more than one person at the same time
Public Goods
Non-excludable and non-rival
Example of Public Good: Fire Department (non-rival, benefits neighbors as well as burning house)

3. AP Economics Mr. Bernstein
Common and Artificially Scarce Resources
Common Resources
Non-excludable but rival
ie fish in the ocean…anyone can catch them but only one person at a time can consume
Artificially Scare Resources
Excludable but non-rival
Pay-per-view movies

4. AP Economics Mr. Bernstein
Public, Private, Common and Artificially Scarce

5. AP Economics Mr. Bernstein
Markets Only Provide Private Goods Efficiently
Freeloader problem
Efficient level of
Public Good is where
MSC = MSB
Variation of MC = MR
MSB is sum of individual
MSB curves

6. AP Economics Mr. Bernstein
Common Resources
Example: Well water
Nonexcludable, rival
“Tragedy of Commons” (1968)
User imposes very small cost to society so individual will overuse
Solutions include tax or regulate users, system of tradable licenses, or otherwise making resource excludable and assigning rights (ie logging Public Lands)

7. AP Economics Mr. Bernstein
Common Resources
S is sum of individual
supply curves
Does not include cost
imposed on others
As a result, MSC lies
above S
Equilibrium is higher
than optimal (MSC=D) point

8. AP Economics Mr. Bernstein
Efficient Level of Artificially Scarce Goods
Example: Pay Per View (On Demand)
Excludable, nonrival
MC ~ = zero
So the efficient quantity is where Demand curve intersects MC = 0 line…
But there is no profit there, so firm excludes some customers by charging $5 to view and quantity ordered is less than efficient quantity