What are the two characteristics used to classify goods in the economy? (Public Goods and Common Resources)
- Excludable: A good is excludable if a person can be prevented from using it when they do not pay for it.
- Rival: A good is rival if one person’s use diminishes other people’s use.
What is a public good?
A public good is non-rival and non-excludable, e.g., national defence and lighthouses.
What is the free rider problem?
A free rider is someone who benefits from a good without paying for it, leading to under-provision of public goods by the market.
How can the government solve the free rider problem?
- Provide public goods funded through tax revenue.
- Introduce a fixed fee for access.
The government can decide to provide or support the public good supply if the
total benefits exceed the costs.
What is a common resource?
What’s the type?
A common resource is rival but non-excludable, e.g., fish in the ocean and the atmosphere.
e.g. atmosphere
Common resources are not excludable. They are available free of charge to anyone
who wishes to use them.
This is similar to a negative externality.
What is the tragedy of the commons?
Overuse of a common resource leads to depletion, harming everyone. Example: overfishing.
What are possible solutions to the tragedy of the commons?
- Government intervention: Usage rules and enforcement.
- Privatisation: Assign property rights. -> Transformation
of the common resource into a private good - Self-organisation: Local management of resources.
What are mixed public goods?
Goods that are non-rival but excludable, e.g., highways, parks, and theatres.
Fire protection
Cable TV
Uncongested toll highways
What is the optimal pricing policy for mixed public goods like tunnels?
- Peak demand price = Marginal Cost during peak.
- Off-peak price = 0 (ansonsten hätten wir dead weight loss!)
- Introduce a fixed fee for access.
What is the atmosphere’s role as a common resource?
I think we can delete this
The atmosphere protects life by providing oxygen and regulating temperature. Excessive greenhouse gas emissions harm its balance.
Demand for Public Good
Aggregate demand reflects the
marginal social benefit (MSB) of a
public good
-> Aggregate demand is the sum of individual demand functions and is obtained by the vertical summation of the value each places on the marginal unit of the public good supplied
Optimum: Intersection of marginal costs and marginal social benefits (MSB)
Mixed Public Goods: How to Finance
Mixed public goods: Tax revenue or introducing a fixed fee only for the users.
Mixed public goods that become private goods (congestion):
Tax revenue or introducing a fixed fee only for the users + time
differentiated prices
Road pricing/Congestion (Stau) charging
There are at least seven reasons for the imperfect functioning of the market
Efficiency:
1. Public goods and common resources
2. Externalities
3. Imperfect competition
4. Incomplete information
Equity:
5. Income and wealth inequalities
Efficiency Equity/Macro-economics:
6. Unemployment and inflation
—
7. Behavioral anomalies
Private Goods
· Ice-cream cones
· Clothing
· Congested toll roads
rival and excludable
COP28
The 2024 United Nations Climate Change Conference (COP29)
The target to limit long-term global temperature
rises to 1.5C was agreed by 197 countries at COP21, held in Paris in 2015.
Two aims:
1. A long-term goal of reaching global net zero emissions around mid-century.
2. Short them national plans, known as Nationally Determined Contributions (NDCs), pegging emissions reductions to 2030. According to Climate Action Tracker the current 2030 pledges will result in a global median temperature increase of 2.4°C by 2100 - dangerously higher than the 1.5°C target. Even in the best-case scenario, an increase of 1.8°C is forecast.
