Chapter 17 Summary PDF

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Consolidated summary of Chapter 17, important chapter in the module Economics 1A and especially for the final examination....

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Chapter 17 Characteristics of Goods Excludable Goods: A good is excludable if the supplier of the good can prevent people who do not pay for it from consuming it. Rivals in Consumption Goods: Same unit of a good cannot be consumed by the same person at the same time Goods which are both excludable and rivals in consumption are called Private Goods. Non-Excludable Goods: A good is non-excludable if the supplier cannot prevent consumption by people who don’t pay for it.

Common Resources: Goods that are non-excludable but are rivals in consumption Artificially scarce goods: Goods that are non-rivals in consumption but are excludable. Free-rider problem: Many individuals are unwilling to pay for their own personal consumption and hence would rely on others to contribute for them This causes non-excludable goods (sewage systems) to suffer from an inefficiently low production In a market economy, goods that are non-rivals in consumption suffer from ineffectively low production, the efficient price of consumption will be zero. If a positive price is charged to compensate the producers for the price of production of the good, then the result is in-efficiently low consumption. Public Goods: Goods that are both non-excludable and non-rivals in consumption are called Public Goods Examples of Public Goods: Defense, Disease prevention and Scientific research.

Public Goods Principle: In the special case of a public good, the marginal social benefit of a unit of the good is equal to the sum of the individual marginal benefits that are enjoyed by all consumers of that unit. It is equal to the vertical sum of the individual marginal benefit curves. Efficient Quantity of a public good is the quantity at which the marginal benefit of providing the good is equal to the marginal cost of providing the good. Costs and Benefits Analysis: Estimation and Comparison of the social costs and social benefits of providing a public good. Common Resources: A common resource is a good that is non excludable but is a rival in consumption. Examples of Common Resources: Stocks of fish in an exclusive area, clean air and water, biodiversity etc. For common resources, no one can be stopped from consuming these goods however the more consumption by oneself will lead to lesser consumption for others. Overuse: Common resources left to the market suffer from overuse, individuals ignore the fact that their use depletes the number of resources available for others.

For common resources, marginal social cost > individual marginal cost

The Efficient Use and Maintenance of a Common Resource   

Tax or otherwise regulate the use of the common resource Create a system of tradable licenses for the right to use the common resources. Make the common resource excludable and assign property rights to some individuals

Artificially Scarce Goods: A good that is excludable but non-rival in consumption Eg: On-demand movies Marginal Cost of an individual’s consumption of an artificially scare good is zero. Since it is an excludable good, sellers charge a positive price which leads to very low consumption levels.

MCQs      

Point of Intersection of the Marginal Social Cost Curve and Demand Curve is the efficient quantity of use In artificially scarce goods, putting a price creates a deadweight loss. For common resources, marginal social cost > individual marginal cost All government services are public goods Artificially scare goods have very low consumption levels Whether or not the pay for them, people cannot be excluded from getting the benefits of a public good or common resource.

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A software program is similar to an apple and public safety, in which it is excludable and non-rivals in consumption. An individual is most likely to be a free rider when a good is non-excludable An inefficient allocation of resources is caused when decision makers are not faced with full benefits and costs of the production. For non-excludable goods, private markets will lead to too little production of the good. Free-rider and high level of consumption: Common Resource Free-ride and low level of consumption: Public Good Public good in a private market: Less Services and free-riders would pay for nothing No individual is willing to pay to provide the efficient level of a public good since the individual’s marginal benefit is less than the marginal social benefit. When the allocation of resources is such that a different allocation would increase’s society’s welfare, economist say that market failure has occurred. When the market does not result in an efficient allocation of scarce resources, market failure has occurred....