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THEORY OF PUBLIC GOODS

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Kristell Jean Ferrater

on 17 April 2014

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Transcript of THEORY OF PUBLIC GOODS

THEORY OF PUBLIC GOODS
design by Dóri Sirály for Prezi
Excludability
1. PRIVATE GOODS

2. PURE PUBLIC GOODS

3.COMMON GOODS

4.PUBLIC ENTERPRISES GOODS

WHAT ARE PUBLIC GOODS?
THE DEMAND CURVE OF A PUBLIC GOOD
TYPES OF GOODS
PROBLEMS WITH PUBLIC GOODS!
National security is accepted as a public good. It is usually referred to as a “pure” public good, meaning it is the best example of what a public good is, non-excludable and non-rival.
NATIONAL DEFENSE
- A public good is an economic good which possesses two properties :
non-rivalrous and
non-excludable.
EXCLUDABLE
NON-EXCLUDABLE
RIVAL
NON-RIVAL
PRIVATE GOODS
Food and Clothing
Car
House
COMMON GOODS
Fish in the open sea
Atmosphere
Public waterways
LOW-CONGESTION
GOODS
Cable television
Satellite radio
Online WSJ
PUBLIC GOODS
Nuclear umbrella
The law
Search engines
On-the-air TV
PUBLIC GOODS
It is non-rival because one’s consumption will not affect another’s consumption of a good. One cannot prevent another from consuming a good which makes it excludable.
PRIVATE GOODS
Goods that are the opposite of public goods; they are rival and excludable Their main features are excludability (meaning that they are rival) and depletability. Private goods are almost exclusively made for profit.
Common Goods
Rivarlous but non-excludable; in other words the supply can be depleted, but people are not restricted in their use of the good. Natural resources can be thought of as common goods - their supplies are not infinite, but their utilization benefits all. Common goods, because they are limited but largely available to all, are susceptible to the Tragedy of the Commons.
Low-congestion Goods
Excludable, but non-rivalrous (at least to a point); this would involve things like subscriptions to cable TV, access to private parks, or even membership in the European Union.
Because they are non-rival and non-excludable, it is hard to force people to pay for public goods.
Free-rider problem
Own interests of public officials
Some public goods are provided through fame incentives or personal motives.
Global public good
Based on the nature of our nations national security and national defense, the government cannot remove protection from one individual simply because he does not pay taxes. Likewise, the government cannot specifically remove protection from non-taxpaying aliens, legal or otherwise.
National security is, for all practical purposes, a pure public good. There will always be ways to theorize around a concept. In theory, we could disprove gravity.
PRIVATE VS PUBLIC
PRIVATE
PUBLIC
All buyers necessarily consume the same quantity, although each may differ in terms of willingness to pay for additional units of the good.

To construct the demand curve, adding the individual demand curves is done vertically.
All buyers face the same price and each chooses the quantity they wish to purchase at that price.

To construct the demand curve, adding the individual demand curves is done horizontally.
OPTIMAL PROVISION OF PURE GOODS
CORRECTION OF MARKET FAILURE
MARKET DEMAND FOR PRIVATE GOODS
MARKET DEMAND FOR PUBLIC GOODS
EFFICIENT QUANTITIES OF PUBLIC GOODS
LINDAHL EQUILIBRIUM
PRIVATE MARKET PROVISION OF PUBLIC GOODS
THEORY OF CLUBS'
INCENTIVES TO FROM CLUBS
SIZES OF CLUBS
CONGESTION AND OPTIMAL MEMBERSHIP SIZE
The congestion properties of goods are therefore important determinants of optimal membership size: The more easily congested are the activities of clubs, the smaller is optimal membership size.
MECHANISMS FOR EXCLUDING FREE RIDERS
The ability to exclude free riders from the benefits of clubs is one reason that clubs are formed in the first place.
EFFICIENCY OF CLUB ARRANGEMENTS
The important point, therefore, is that when public goods are provided in private markets, the club has an inherent incentive to be well run and accountable to the preferences of its members.
PUBLIC GOODS PRODUCED IN PRIVATE MARKETS
PRIVATE GOODS PRODUCED IN PUBLIC MARKETS
PUBLIC GOODS PRODUCED IN PRIVATE AND PUBLIC MARKETS
BETWEEN PRIVATE AND PUBLIC GOODS
ALL GOODS PRODUCED BY THE PUBLIC SECTOR ARE NOT PUBLIC GOODS
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