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Public Goods and Common Resources Essay Plan
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Essay plan for a Public Goods and Common Resources topics based essay
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Introduction:- Rival Product is one which if u is consuming it another person could not consume that
product at the same time
- Non-rival product is one which if u is consuming it another person can consume that product
at the same time
- Excludable product is one which u can be excluded from consuming if u don’t pay for it
- Non-Excludable product is one which u can’t be excluded from consuming if u don’t pay for
it
Main Body:
- Free rider problem is where people are not able to be charged for the consumption of a
public good e.g. for a firework display and as a result they are not provided by a firm or
underproduced as the good has positive externalities even though there is benefit to society
of providing the good (MB>MC)
- As good is non-excludable people will not pay to consume the good when they can just
consume the good without paying and will try and get a ‘free ride’ as such.
- A free rider is a person who receives benefit from consumption of a good but doesn’t pay for
it
- Public good not being provided can be viewed as a PPE as the external benefit to society of
providing the good is not accounted for in the producers decision to produce and so the
solution is for government to provide display and recoup costs through tax
PPE Public Good diagram analysis
- Person 2 D2 has greater demand for fireworks than D1 and so he ends up paying whereas
person 1 doesn’t pay; we can see this using vertical interpretation of D curve and see that V2
> V1
- Q* is the socially desirable level as it is where MSC = MSB ; MSB has accounted for demand
for both people
- However only Q1 is provided as this is where MSC = D2 who is the only person who pays
- Government could intervene and provide the fireworks display and recoup the money
through taxation.
- Whether government could provide the efficient level will depend on the quality of info they
end up receiving on MSC of government services and MSB of government services
- Government may decide whether to provide the public good based on cost benefit analysis
where it estimates the total benefits and total costs to society and such estimates are likely
to have a large degree of error; benefits and costs may also be in different units so to
convert and try and get a comparison of these is difficult.
- Governments may not even consider MSB and MSC a lot of the time when deciding on
projects as they spend on the projects with the most votes
Common Resources
- Common resources get used more than socially desirable
- Shown by tragedy of the commons; common resources get overused as people don’t own
the land so consume to the point of 0 marginal utility to them
- The tragedy is caused due to the difference in social and private incentives;
- People don’t have incentive to lower own individual consumption of the common resources
- One individual person’s consumption is only part of the problem
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