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Externalities and Public Goods Shared Consumption

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Externalities and
Public Goods
By
Joe Lopilato
Dylan Cleland
Devin Norris
Max Cohen
Isabel Lochtenberg

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TERMS
Public Good: A good or service, often provided by the
government, that has no restrictions on consumption. (For
example, drinking fountains, lighthouses, and public
art.)
Excludability: Sellers have the ability to prevent nonpaying
consumers from receiving benefits of a good or service.
Free-rider problem: Potential providers of a good or
service are unable to limit the benefits of the good to
only those who pay.
Non-rivalry: One person buys/consumes a product that is also
available for purchase/consumption by another customer. (For
example: a song on iTunes.)
Shared Consumption: Many people can utilize a product
without interfering with each other’s consumption.
Rivalry: One person buys/consumes a product that is not
available for purchase/consumption by another customer. (For
example: a rare piece of art or artifact)
Market failure: Private markets do not correctly allocate
resources in a way that would most benefit society. Why?
Externalities.
Externalities: Costs or benefits associated with an individual or
group that is external to a market transaction:
Spillover cost, called a negative externality, results
in over allocation of resources.
SOLVED BY: TAXING POLLUTION

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Externalities and Public Goods By Joe Lopilato Dylan Cleland Devin Norris Max Cohen Isabel Lochtenberg TERMS Public Good: A good or service, often provided by the government, that has no restrictions on consumption. (For example, drinking fountains, lighthouses, and public art.) Excludability: Sellers have the ability to prevent nonpaying consumers from receiving benefits of a good or service. Free-rider problem: Potential providers of a good or service are unable to limit the benefits of the good to only those who pay. Non-rivalry: One person buys/consumes a product that is also available for purchase/consumption by another customer. (For example: a song on iTunes.) Shared Consumption: Many people can utilize a product without interfering with each other’s consumption. Rivalry: One person buys/consumes a product that is not available for purchase/consumption by another customer. (For example: a rare piece of art or artifact) Market failure: Private markets do not correctly allocate resources in a way that would most benefit society. Why? Externalities. Externalities: Costs or benefits associated with an individual or group that is external to a market transaction: Spillover cost, called a negative externality, results in over allocation of resources. SOLVED BY: TAXING POLLUTION Spillover benefit, called a positive externality, results in under allocation of resources. SOLVED BY: SUBSIDIES TO MAKE UP FOR FREERIDERS (similar to bartering) Income inequality: Unequal ...
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