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Definition
| A commodity that is nonrival and nonexcludable in consumption |
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Definition
A commodity that once provided, the additional resource cost of another person consuming the good is zero
ex: empty seats in our classroom |
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Definition
To prevent anyone from consuming the good is either very expensive or impossible
ex: to answer 1 person's question after kicking everyone else in the class out |
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Definition
| A commodity that is rival and excludable in consumption |
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| Most goods in the market place are... |
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Definition
| Private goods! Meaning they are up to our individual choice |
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| Even though everyone consumes the same quantity of the good... |
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Definition
it need not be valued equally by all
ex: National defense- some place higher value on it than others |
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| Classification of a public good isn't absolute, what are the conditions? |
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Definition
1. Market conditions
2. State of technology |
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Term
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Definition
A good that is rival and/or excludable to some extent
-A commodity can satisfy one part of the def of public good but not the other |
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Term
| What is honesty an example of? |
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Definition
An unconventional commodity with public good characteristics
-If everyone is honest in commercial transactions, all of society benefits bc the cots of doing business are lower
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Term
| Publicly Provided Private Goods |
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Definition
Rival and excludable commodities that are provided by governments
ex: medical services & housing
-The name public/private doesn't necessarily tell us which sector provides the item
-Garbage collection is an example of a public good provided by a private sector |
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Term
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Definition
| The process of creating a market demand curve by summing the quantities demanded by each individual at every price |
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| What does efficiency require for a public good? |
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Definition
| Provision of a public good to be expanded until the point at which the sum of each person's marginal valuation on the last unit just equals marginal cost |
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Definition
| The process of creating an aggregate demand curve for a public good by adding the prices each individual is willing to pay for a given quantity of the good |
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Definition
| The incentive to let other people pay for a public good while you enjoy the benefits |
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Term
| Perfect Price Discrimination |
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Definition
| When a producer charges each person the max he or she is willing to pay for the good |
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Term
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Definition
-not a given by hypothesized that people max a utility function that depends only on their own consumption of goods
-Argument that the gov can somehow find out everyone's true preferences and then using their power force everybody to pay for public goods |
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Term
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Definition
| The process of turning services that are supplied by the gov over to the private sector for provision and/or production |
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| What should be considered during privatization? |
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Definition
| Relative wage & material costs, administration costs, diversity of tastes & preferences and distribution issues |
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Term
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Definition
The idea that some commodities ought to be made available to everybody
ex: education
-distributional issues |
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Term
| Efficiency condition for a private good: |
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Definition
| Marginal Benefit= Marginal Cost |
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| Efficiency condition tor a public good: |
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Definition
| Sum of Marginal Benefit= Marginal Cost |
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Definition
| A cost or benefit that occurs when the activity of one entity directly affects the welfare of another in a way that is outside the market mechanism |
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| The Nature of Externalities |
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Definition
1.Can be produced by consumers as well as firms
2.Are reciprocal in nature
3.Can be positive
4.Public goods can be viewed as a special kind of externality
-as long as someone owns a resource, its price reflects the value for alternative uses, and the resource is therefore used efficiently. |
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