October 16, 2022

Give some examples of social media providers regulating the behavior of others.? Do you think the providers of social media should regulate the behavior of users? Explain.? How does this dis

Prompt 2
Give some examples of social media providers regulating the behavior of others. Do you think the providers of social media should regulate the behavior of users? Explain. How does this discussion tie into microeconomics?

AROUND 250 WORDS

Chapter11PublicGoodsandCommonResources.pptx

Principles of Economics, Ninth Edition N. Gregory Mankiw

PowerPoint Slides prepared by:

V. Andreea CHIRITESCU

Eastern Illinois University

N. Gregory Mankiw Principles Of Economics Ninth Edition

Chapter 11

Public Goods and Common Resources

The Different Kinds of Goods, Part 1

Excludability

Property of a good whereby a person can be prevented from using it

Rivalry in consumption

Property of a good whereby one person’s use diminishes other people’s use

The Different Kinds of Goods, Part 2

Private goods

Excludable & Rival in consumption

Public goods

Not excludable & Not rival in consumption

Common resources

Rival in consumption & Not excludable

Club goods

Excludable & Not rival in consumption

One type of natural monopoly

Figure 1 Four Types of Goods

The Different Kinds of Goods, Part 3

Public goods and common resources

Not excludable

People cannot be prevented from using them

Available to everyone free of charge

No price attached to it

External effects

Positive externalities (public goods)

Negative externalities (common resources)

The Different Kinds of Goods, Part 4

Public goods and common resources

Private decisions about consumption and production

Can lead to an inefficient allocation of resources

Government intervention

Can potentially raise economic well-being

Public Goods, Part 1

Free rider

Person who receives the benefit of a good but avoids paying for it

The free-rider problem

Public goods are not excludable

Prevents the private market from supplying the goods

Market failure

Public Goods, Part 2

Government can remedy the free-rider problem

If total benefits of a public good exceeds its costs

Provide the public good

Pay for it with tax revenue

Make everyone better off

“I like the concept if we can do it with no new taxes.”

Public Goods, Part 3

Some important public goods

National defense

Very expensive public good

$744 billion in 2017

Basic research

General knowledge

Subsidized by government

The public sector fails to pay for the right amount and the right kinds

Public Goods, Part 4

Some important public goods

Antipoverty programs financed by taxes

Welfare system (Temporary Assistance for Needy Families program, TANF)

Provides a small income for some poor families

Food stamps (Supplemental Nutrition Assistance Program, SNAP)

Subsidize the purchase of food for those with low incomes

Government housing programs

Make shelter more affordable

Are Lighthouses Public Goods?, Part 1

Lighthouses

Mark specific locations so that passing ships can avoid treacherous waters

Benefit: to the ship captain

Not excludable, not rival in consumption

Incentive: free ride without paying

Most are operated by the government

What kind of good is this?

Are Lighthouses Public Goods?, Part 2

In some cases

Lighthouses are closer to private goods

Coast of England, 19th century

Lighthouses were privately owned and operated

The owner of the lighthouse charged the owner of the nearby port

If the port owner did not pay, lighthouse owner turned the light off: ships avoided that port

Are Lighthouses Public Goods?, Part 3

Decide whether something is a public good

Determine who the beneficiaries are

Determine whether the beneficiaries can be excluded from using the good

A free-rider problem

When the number of beneficiaries is large

Exclusion of any one of them is impossible

Public Goods, Part 5

The difficult job of cost–benefit analysis

Government

Decide what public goods to provide

In what quantities

Cost–benefit analysis

Compare the costs and benefits to society of providing a public good

Doesn’t have any price signals to observe

Government findings: rough approximations at best

How Much is a Life Worth?, Part 1

Cost: $10,000 for a new traffic light

Benefit: increased safety

Risk of a fatal traffic accident

Drops from 1.6 to 1.1%

Obstacle

Measure costs and benefits in the same units

Put a dollar value on a human life?

Priceless = infinite dollar value

How Much is a Life Worth?, Part 2

Implicit dollar value of a human life

Courts: award damages in wrongful-death suits

Total amount of money a person would have earned if he or she had lived

Ignores other opportunity costs of losing one’s life

Risks that people are voluntarily willing to take and how much they must be paid for taking them

Value of human life = $10 million

How Much is a Life Worth?, Part 3

Cost–benefit analysis

Traffic light

Reduces risk of fatality by 0.5 percentage points

Expected benefit = 0.005 × $10 million = $50,000

Cost ($10,000) < Benefit ($50,000)

Approve the traffic light

ASK THE EXPERTS

Congestion Pricing

“In general, using more congestion charges in crowded transportation networks — such as higher tolls during peak travel times in cities, and peak fees for airplane takeoff and landing slots — and using the proceeds to lower other taxes would make citizens on average better off.”

Common Resources, Part 1

Common resources

Not excludable

Rival in consumption

The tragedy of the commons

Parable that shows why common resources are used more than desirable

From society’s standpoint

Social and private incentives differ

Arises because of a negative externality

Common Resources, Part 2

The tragedy of the commons

Negative externality

One person uses a common resource diminishes other people’s enjoyment of it

Common resources tend to be used excessively

Government can solve the problem

Regulation or taxes to reduce consumption of the common resource

Turn the common resource into a private good

Common Resources, Part 3

Some important common resources

Clean air and water

Negative externality: pollution

Regulations or corrective taxes

Congested roads

Negative externality: congestion

Corrective tax: charge drivers a tool

Tax on gasoline

Common Resources, Part 4

Some important common resources

Fish, whales, and other wildlife

Oceans: the least regulated common resource

Needs international cooperation

Difficult to enforce an agreement

Fishing and hunting licenses

Limits on fishing and hunting seasons

Limits on size of fish

Limits on quantity of animals killed

Why the Cow Is Not Extinct, Part 1

Animals with commercial value that are threatened with extinction

Buffalo

North America

Hunting in the 19th century

Elephants

African countries

Hunting today

“Will the market protect me?”

Why the Cow Is Not Extinct, Part 2

The cow

Commercial value

Species continues to thrive

Cows are a private good

Ranches are privately owned

Rancher: great effort to maintain the cattle population on his ranch

Reaps the benefit

Why the Cow Is Not Extinct, Part 3

Elephant – common resource

Poachers are numerous

Strong incentive to kill elephants

Government of Kenya, Tanzania, and Uganda

Illegal to kill elephants and sell ivory

Hard to enforce laws

Decreasing population of elephants

Why the Cow Is Not Extinct, Part 4

Government of Botswana, Malawi, Namibia, and Zimbabwe

Made elephants a private good

People can kill elephants on their own property

Landowners have an incentive to preserve the species

Elephant populations have started to rise

Importance of Property Rights, Part 1

Market fails to allocate resources efficiently

Because property rights are not well established

Some item of value does not have an owner with the legal authority to control it

Importance of Property Rights, Part 2

The government can potentially solve the problem

Help define property rights and thereby unleash market forces

Regulate private behavior

Use tax revenue to supply a good that the market fails to supply

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