Unit 11: Public Goods and Common Resources
Goods nobody can be kept from using, and why that single fact explains everything from underfunded fireworks displays to overfished oceans.
5 topics · 17 questions
Each topic is a path, not a menu: work down it in order and every question builds on the one above. Click any of them to watch the answer draw itself.
Classifying Goods by Excludability and Rivalry
- How it worksHow do excludability and rivalry in consumption sort every good into a private good, a public good, a common resource, or a natural monopoly's good?
- Worked exampleWalk me through sorting a toll road, open ocean fish, a fireworks display, and a slice of pizza into the four categories.
- Common mistakeWhy isn't public good just a label for anything the government happens to provide?
Your turn1 of 2
A toll road excludes non-payers and gets congested when too many cars use it, open ocean fish are hard to exclude anyone from catching and get depleted with overuse, and a fireworks display excludes no one and isn't used up by an extra viewer. How do excludability and rivalry sort these into different categories of goods?The Free-Rider Problem
- How it worksHow does the impossibility of excluding non-payers give everyone an incentive to let someone else pay for a public good?
- Common mistakeWhy doesn't the free-rider problem mean people don't value the public good?
- Going furtherWhat happens to private provision of a public good once the government decides to fund it through taxes instead?
Your turn1 of 2
Three residents value a neighborhood fireworks show at 34, 28, and 24 dollars. Since demand for a public good adds up each person's value, what is the combined value these three residents place on the show?Cost-Benefit Analysis for Public Goods
- How it worksHow does cost-benefit analysis try to estimate a public good's total value when no market price reveals it directly?
- Common mistakeWhy isn't skipping cost-benefit analysis and just building every proposed public good the safer choice?
- Ties togetherHow does the free-rider problem explain why cost-benefit analysis has to guess at values that a private market would normally reveal through prices?
Your turn1 of 2
A city wants to decide whether building a new highway is worth its cost, but there's no market price directly telling planners how much residents value that highway. How does cost-benefit analysis try to solve this problem?The Tragedy of the Commons
- How it worksHow does each herder ignoring the cost their extra animal imposes on everyone else's grazing land drain a shared resource?
- Worked exampleWalk me through a shared fishing ground where four boats each add one more trawler until the fish population collapses.
- Common mistakeWhy isn't the tragedy of the commons caused by any one person acting selfishly or foolishly?
- Going furtherWhat happens to a common resource once it gets divided into private property that each owner has an incentive to maintain?
- Ties togetherHow does the tragedy of the commons work like a negative externality that each individual herder imposes on every other herder?
Your turn1 of 2
A fishery's marginal social benefit from an additional boat is MSB = 122 minus 2 times N dollars, and marginal cost per boat is a constant 29 dollars. What is the socially efficient number of boats?Solutions to the Tragedy of the Commons
- How it worksHow do property rights, taxes on use, and tradable quotas each give someone an incentive to account for the cost their extra use imposes?
- Common mistakeWhy doesn't solving a tragedy of the commons always require turning the resource fully private?
- Ties togetherHow does a tradable fishing quota work the same way a tradable pollution permit does to fix an externality?
Your turn1 of 2
A tradable fishing quota is set at 22 boats, the socially efficient level. If unrestricted access would have drawn 51 boats to the fishery, how many boats does the quota keep out?