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Unit 5 – Market Failure and the Role of Government Public Goods

Unit 5 – Market Failure and the Role of Government Public Goods. What are the characteristics of Public Goods ? Nonrivalry : one person’s consumption of a public good does not prevent someone else from consuming it.

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Unit 5 – Market Failure and the Role of Government Public Goods

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  1. Unit 5 – Market Failure and the Role of Government Public Goods

  2. What are the characteristics of Public Goods? Nonrivalry: one person’s consumption of a public good does not prevent someone else from consuming it. 2. Nonexludability: Once a public good has been provided, the producer cannot prevent people that have not paid for it from receiving the benefits. This leads to the free rider problem. Examples? Note: There is a positive externality associated with public goods.

  3. Deriving the Demand Curve for Public Goods. 1. To find the demand for a public good, add up all individuals’ marginal benefit (that is, the price they are willing to pay) at any given quantity.

  4. DemandLily+Natalie+Danny = DemandPublic

  5. Now suppose that Danny is the one who decides to puts on a fireworks displays every summer. Here is the marginal cost data for fireworks displays: To your graph of public demand, add this marginal cost data and Danny’s private demand curve.

  6. MPC = MSC DDanny DemandLily+Natalie+Danny = DemandPublic QD QEF

  7. 40 30 Price (1000s of $) 20 MPC=MSC DPublic 10 DAubrey 0 6 8 4 2 Quantity (acres of land in park)

  8. Homework Review pages 558 – 562 in textbook. Answer Chapter 30 Study Questions 1 – 4.

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