Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Micro: Chapter 17
Midterm 3
| Term | Definition |
|---|---|
| rival | one person's consumption of a good directly effects someone else; ex= buying pair of schools, Big Mac |
| nonrival | just because I consume a good doesn't mean you can't; ex= radio station, trees |
| excludable | I can prevent you from consuming a good if you don't pay for it; ex= shoes |
| nonexcludable | you can enjoy goods without paying for it; ex= tree, NPR, national defense |
| 4 categories of goods | private goods (rival, excludable); artificially scarce goods (nonrival, excludable); common resources (rival, nonexcludable); public goods (nonrival, nonexcludable) |
| why nonexcludability causes markets to fail | people won't provide goods they cant prevent others from consuming (no money made); freerider problem: let others pay for good and mooch (group project); nonexcludability=inefficiently low production; market bad at producing bc private firms can't benefit |
| why nonrival causes markets to fail | efficiency requires MB=MC; MC of providing a nonrival good is 0; if you consume it, it doesn't prevent you from using it -> marginal cost to next consumer is effectively 0; unless price is 0, demand will be too low = inefficiently low consumption |
| ways to provide nonrival/nonexcludable public goods? | private donations only have limited scope; market solutions like ads on facebook; public pressure only works with small communities; turn to the government |
| how much should government provide? | MC=MB doesn't work w/nonrival; gov should make decisions based on total benefit to society which is the sum of the individuals; MSB >(=)MC |
| how do you decide what to choose? | add up the MB of everyone involved and see if that's greater than or equal to MC of one more unit; if only 1 person was making the choice, wouldn't get optimal quantity; socially optimal level different from 1 person's quantity |
| public good provision moral | marginal social benefit = sum of marginal benefits of all who benefit from good (MSB=MBeveryone); gov should provide another unit if MC is less than or equal to total MSB (don't just ask what 1 person values the good at) |
| how to get the marginal social benefit and the money to pay for it | incentive to overstate how much you value something in a hypothetical situation than if they had to pay; majority voting (median voter decides quantities); tiebout sorting (vote w/feet, but people can't always just move) |
| common resources | rival, nonexcludable (fishing, public water); chronic overuse, consume too much if nothing stops you; indiv uses resource until personal MB=MC, ignore externalities; MSC=MB+MEC (but you don't feel MEC so you ignore it) |
| how to fix common resources | pretty much like externalities; tax the use of the resource; permit/licenses (rights to fish); property rights (once someone owns something, they have incentive to maintain it); ex=hunting rights for rhinos, if they=$, incentive to keep them around |
| artificially scare goods | nonrival, excludable; cable tv, computer software, movies; MC of providing to another indiv is zero, but people can charge non zero price (MC after good 1=0); MC<MB for some transactions, we have surplus; DWL; Qmarket<Qefficient |
| review of public goods: how much is right? | MSB=MSC; everyone benefits from good without taking away from someone else, what matters is sum of all indiv marginal benefits; indiv will choose level that's too low; the fix= gov provided |
| common resources: how much is right? | market will set MC=MB and ignore social cost caused by consumption (grazing lands, clean water, atmosphere); fix= taxes, property rights; THINK EXTERNALITIES |
| artificially scarce goods: how much is right? | social efficiency requires MB+MC, but MC of artifically scare good is 0; not free to have exist, but once it exists, MC is 0 (cost to produce is sunk, so you ignore those costs and make money back by charging for good); fix= regulation (?) |
Created by:
nicook
Popular Economics sets