ECO 1104 Lecture Notes - Lecture 12: Free Rider Problem, Deadweight Loss, Market Failure

• School: University of Ottawa
• Department: Economics
• Course: ECO 1104
• Professor: Harris

Document Summary

Rivalry: if i eat it, you can"t. We are rivals in the consumption of a product. Eg someone has a chocolate bar, someone else comes and eats it the whole chocolate bar is now gone. Excludability: if you won"t pay, you can"t have it. Eg if i"m selling chocolate bars, you can only have it if you pay for it; if you"re not willing to pay the price, i can exclude you by refusing to sell it to you. Because we cannot be excluded even if we don"t pay, so the product doesn"t get produced by the private market, even though we all want it and would benefit from it (even though the benefit > cost*) This is a case of market failure. There is a deadweight loss unless the gov intervenes. Government forces everybody to pay (using a tax) and provides the socially optimal amount of the good or service.