ECON1101 Lecture Notes - Lecture 10: Pay Television, Marginal Cost, Externality
Wednesday, 3 May 2017
Microeconomics
Public Goods
-Examples:
•Education
•Health system
•National defence
•Judiciary system
-Non-Rivalry: One individual's consumption of that good does not impede the
simultaneous consumption of another individual
•MC of providing the public good to an additional individual is zero
-Non-Excludability: No one can be excluded from consuming the good
-Pure public goods - goods that are perfectly non-rivalrous & non-excludable
-Impure public goods - goods that are non-rivalrous & non-excludable only up to a point
•Excludable, but non-rivalrous
-Pay TV (needs subscription, but your enjoyment is not affected by someone else
watching TV)
-Buses, airplanes etc.
•Non-excludable, but rivalrous
-Congested motorway (no toll, but takes longer time)
-Hospitals, schools, public transport
•Before full capacity is reached: MC = 0 —> PURE
•After full capacity is reached: MC > 0 —> IMPURE
-Marginal Social Benefit: Vertical sum of individual marginal benefits
-Samuelson Condition: Efficient quantity of a public good is found by setting the sum of
the individual marginal benefits equal to the marginal cost
-Free-Riding: Action of enjoying a good without paying for it
•Caused by non-excludable nature of public goods & results in under-provision
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