2. PUBLIC GOODSRivalry & Excludability(Chapter 5)Private
GoodsDivisibilityDemand Curve is Horizontal SummationPublic
GoodsIndivisibility 3. DEMAND FOR A PUBLIC GOODProblems of
Revealing PreferencesAdamsBensons CollectiveWillingnessWillingness
WillingnessQuantity to pay (price) to pay (price) to pay (price) 1
Exclusion Principle does not apply 4. DEMAND FOR A PUBLIC
GOODProblems of Revealing PreferencesAdams Bensons
CollectiveWillingness Willingness WillingnessQuantity to pay
(price)to pay (price) to pay (price) 1 $4 + $5= $9 5. DEMAND FOR A
PUBLIC GOODProblems of Revealing PreferencesAdams Bensons
CollectiveWillingness Willingness WillingnessQuantity to pay
(price)to pay (price) to pay (price) 1 $4 + $5= $9 23 + 4 = 7 6.
DEMAND FOR A PUBLIC GOODProblems of Revealing PreferencesAdams
Bensons CollectiveWillingness Willingness WillingnessQuantity to
pay (price)to pay (price) to pay (price) 1 $4 + $5= $9 23 + 4 = 7
32 + 3 = 5 7. DEMAND FOR A PUBLIC GOODProblems of Revealing
PreferencesAdams Bensons CollectiveWillingness Willingness
WillingnessQuantity to pay (price)to pay (price) to pay (price) 1
$4 + $5= $9 23 + 4 = 7 32 + 3 = 5 41 + 2 = 3 8. DEMAND FOR A PUBLIC
GOODProblems of Revealing PreferencesAdams Bensons
CollectiveWillingness Willingness WillingnessQuantity to pay
(price)to pay (price) to pay (price) 1 $4 + $5= $9 23 + 4 = 7 32 +
3 = 5 41 + 2 = 3 50 + 1 = 1 9. OPTIMAL AMOUNT OF A PUBLIC GOOD P$9
7 5Adams willingness 3to pay 1D1 Q 0 1 2 345 10. OPTIMAL AMOUNT OF
A PUBLIC GOOD P$9 7 Bensonswillingness to pay 5 3D2 1D1 Q 0 1 2 345
11. OPTIMAL AMOUNT OF A PUBLIC GOODP When vertically$9added
equalscollective 7 willingnessto pay 5 3 D2 1DC D1Q 0 123 45 12.
OPTIMAL AMOUNT OF A PUBLIC GOOD P$9S 7The public goodsmarginal cost
5 as shown by S 3 1 DCQ 0 1 2 345 13. OPTIMAL AMOUNT OF A PUBLIC
GOOD P$9S 7 Yields theoptimum amountof the public good 5MB = MC 3 1
DCQ 0 1 2 3 4 5 14. COST-BENEFIT ANALYSISMarginal Cost = Marginal
Benefit RuleExternalitiesSpillover CostsOverallocationSpillover
BenefitsUnderallocation 15. SPILLOVER COSTS AND BENEFITSP St
SpillovercostsSD Overallocation0Q0 QeQ 16. SPILLOVER COSTS AND
BENEFITSPStSpilloverBenefits Dt D Underallocation0Qe Q0 Q 17.
SPILLOVER COSTS AND BENEFITSIndividual Bargaining Coase Theorem
Liability Rules and LawsuitsGovernment Intervention Direct Controls
Specific Taxes Subsidies and Government Provision 18. CORRECTING
SPILLOVER COSTSPStSpillover costs STAXOverallocationCorrected D0 Q0
QeQ 19. CORRECTING SPILLOVER BENFITSPSSpilloverBenefits
DtUnderallocation D0 Qe Q0 Q 20. CORRECTING SPILLOVER BENFITSP
Correcting by Subsidy to ConsumersS Subsidy to consumer
increasesdemandDtUnderallocationDCorrected0 Qe Q0Q 21. CORRECTING
SPILLOVER BENFITSP Correcting by Subsidy to ProducersSubsidy to
Stproducersincreasessupply St Underallocation Corrected D0 QeQ0Q
22. A MARKET-BASED APPROACHTO SPILLOVER COSTSThe Tragedy of the
CommonsA Market for Externality RightsOperation of the
MarketAdvantages D 2004 S = Supply of pollution rightsPrice per
pollution right$200$100D 2012500 750 1000 Quantity of pollution
rights 23. SOCIETYS OPTIMAL AMOUNTOF EXTERNALITY
REDUCTIONApplication of MC = MBRuleMC, MB EquilibriumOptimal
Reduction of anExternalityShifts in the Curves Graphically 24.
SOCIETYS OPTIMAL AMOUNTOF EXTERNALITY REDUCTIONSocietys marginal
benefit and marginalMCcost of pollution abatementSocially optimum
amount ofpollution abatement MB0 Q1 Amount of pollution abatement
25. RECYCLINGMarket for Recyclable InputsPolicyDemand
IncentivesSupply IncentivesGlobal Warming Theory 26.
RECYCLINGInformation FailuresAsymmetric InformationInadequate
information about sellers about buyersMoral Hazard ProblemAdverse
Selection Problem Workplace Safety 27. cost-benefit
analysismarginal-cost marginal-benefit ruleexternalitiesCoase
theoremtragedy of the commonsmarket for externality rightsoptimal
reduction of an externalityasymmetric informationmoral hazard
problemadverse selection problemCopyright McGraw-Hill/Irwin, 2005
BACK END 28. Public Choice TheoryAndThe Economics of Taxation
Chapter 31
