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Public Goods

Public Goods. Definition: Goods that do not get used up when consumed. In other words, one person’s consumption of a good doesn’t reduce anyone else’s potential consumption of the same good.

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Public Goods

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  1. Public Goods Definition: Goods that do not get used up when consumed. In other words, one person’s consumption of a good doesn’t reduce anyone else’s potential consumption of the same good. Obviously, these are not physical items that get used up. Instead they are usually ideas and artistic expressions. They are at the core of the Information Age Economy, since information is a public good. The Demand for Public Goods is the vertical sum of individual demands.

  2. Vertical Addition of Demands P4 Σ D P3 P2 D3 P1 D2 Q D1 Q1

  3. Public Goods Think of book titles as public goods, but physical copies of single book title are private goods that embody a public good. Several questions arise: how many titles are optimal to publish? How many copies of each title would be optimal? How do competitive markets work? Monopolies? Finally, is it possible to produce public goods efficiently?

  4. In principle, a perfectly discriminating monopolist can produce efficient amount of public good. S P4 P3 Σ D P2 P1 Q Q2 Q1

  5. Production of a Single book title 2 1 Pm 4 3 7 MC of printing 5 8 D 6 Qm number of copies of a title MR

  6. Market Demand for Titles MC of writing another title Pm Perf Discrimination Demand for titles Attainable Demand for titles Qm Q* Q** number of titles written

  7. Tragedy of the Commons • Common Property Resource – lake, forest, any productive resource that allows free use. • The tragedy is that the resource is overused. • Greater tragedy is that it is overused to the point where its entire value might be dissipated.

  8. Fishermen on Lake

  9. Illustrating Overuse

  10. Business Applications • Should a firm have internal charges when one division helps another (e.g. technical support)? • Network Effects (again).

  11. End of Course • What did you think of the course? This format? Distant learning? The exams? • Let me know if you found the animations to be of value. If so, I will animate more slides for this course next time. If not, I won’t.

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