{"id":1330,"date":"2015-05-12T16:34:05","date_gmt":"2015-05-12T16:34:05","guid":{"rendered":"https:\/\/courses.candelalearning.com\/masterymicro1xngcxmaster\/?post_type=chapter&p=1330"},"modified":"2016-03-21T19:21:12","modified_gmt":"2016-03-21T19:21:12","slug":"why-it-matters-15","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/chapter\/why-it-matters-15\/","title":{"raw":"Why It Matters: Public Goods","rendered":"Why It Matters: Public Goods"},"content":{"raw":"

Why compare public goods and private goods and understand the role for them in the economy?<\/h2>\r\nDecisions made by firms and individuals in a market often have a spillover effect on other people, whether it be for good (like your neighbor\u2019s sweet-smelling cookies), or for the bad (the smelly paper plant that opened up a mile away). In this module, we learn about these positive and negative externalities, as well as the range of public versus private goods.\r\n\r\nOne of the characteristics of any good or service is its \u201cpublic\" or \u201cprivate\u201d-ness. Goods can be public or private or anything in between. What does this mean? It\u2019s probably not what you think. It doesn\u2019t primarily mean who provides it.\u00a0 In other words, a good is not private because it is provided by private businesses. A good is not public because it is provided by the government. Rather, private\/public is more a description of how these goods are consumed.\r\n\r\n[caption id=\"attachment_2450\" align=\"alignright\" width=\"326\"]\"Photograph<\/a> F-15E Strike Eagle Fighter<\/a> by U.S. Air Force, CC-BY-NC<\/a>.[\/caption]\r\n\r\nAll of us consume private goods and public goods. There are three basic cases: A private good<\/strong> is one for which the consumer pays all the costs and receives all the benefits. If you buy an apple to eat, no one gets to share any part of the apple that you eat. A public good<\/strong> is one where one person\u2019s consumption doesn\u2019t prevent anyone else from consuming it too. National defense is the classic example \u00a0Once it\u2019s there, everyone gets the benefits of it. This leads to \u201cfree riding,\u201d where people try to avoid paying for the public good since they\u2019ll get the benefits anyway. In between public and private goods are externality goods (or semi-public goods). Externality goods are characterized by spillovers. People may benefit without paying for externality goods. Or they may have to pay some of the costs without gaining any of the benefits. One example is public K-12 education. Children benefit without paying. Even their parents don\u2019t pay the full cost of their education, which tends to be paid for with property taxes regardless of whether the property owner has children in school.\r\n\r\n[caption id=\"attachment_2451\" align=\"alignright\" width=\"259\"]\"Vintage,<\/a> Vintage Class Photo<\/a>, Globe Public School by freeparking, CC-BY-NC<\/a>.[\/caption]\r\n
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  • What are some other examples of private goods? \u00a0(Hint: most of the things you consume are private goods.)<\/li>\r\n\t
  • What are some other examples of public goods?<\/li>\r\n\t
  • How can \u201cfree riding\u201d be prevented?<\/li>\r\n\t
  • What are some other examples of externality goods (or externalities in general)?<\/li>\r\n\t
  • Why does it make sense for society to pay for public education, when not everyone has children?<\/li>\r\n<\/ul>\r\nIt is understood that a market economy does not fully address all of the needs in a society. These inefficiencies in the way a market economy allocates goods and resources is known as market failure<\/strong>. Watch this video to see how\u00a0externalities and public goods are examples of market failure.\r\n\r\nhttps:\/\/youtu.be\/rJixtB0GluQ?list=PL336C870BEAD3B58B\r\n\r\nPublic goods and externality goods tend to be either supplied too much or supplied too little compared to what is optimal for society. What policies can government pursue to ameliorate this?\r\n\r\nLet\u2019s find out.\r\n

    Introduction to Public Goods<\/h2>\r\nDecisions made by firms and individuals in a market often have a spillover effect on other people, whether it be for good (like your neighbor's sweet-smelling cookies), or for the bad (the smelly paper plant that opened up a mile away). In this module, we learn about these positive and negative externalities, as well as public goods, which are typically provided by the government and made freely available to all.\r\n\r\n