Public Goods & Common ResourcesCHAPTER 11 PRESENTATION

Presenters:

HARIS AWAN SP13-BBA-028FARHAN ALI RANA SP13-BBA-055MUNEEB AHMED FA13-BBA-185MOHSIN KHAWAJA SP13-BBA-037

THE BEST THINGS IN LIFE ARE FREE…Goods without prices provide a special challenge for the economic analysis .

Price are the signals…• That guide decisions of buyers and sellers

which leads to an efficient allocation of resources.

Otherwise when the goods are available for free the market forces that normally allocate the resources become Absent.

Kinds of Goods.As there are various goods in economy, its better to group them according to their characteristics,1) Excludable 2)Rival in consumptionExcludable:

if the people can be prevented from using it.Rival in consumption:

if one person's use of the good diminishes other people’s use of it.

Further Division.• Private Goods:

• Goods that are both excludable and rival in consumption.

• Public Goods:• Goods that are both executable and rival in consumption.Example:1. National defense2. Fighting poverty3. Basic Research

• Common resources:• Goods that are rival but not excludable.

• Club goods:• Goods that are excludable but not rival.

Explanation….!• If a person provides a public good as a tornado

serein, other people would better-off because of free service (Positive externality)

• When a person uses a common resource such as the fish ocean , other people are worst-off because of fewer fishes to catch and that a non-compensated loss.

(Negative externality)Because of these external effects, private decisions about the consumption and production can be a loss to allocation of resources, and the Govt. intervention can be a lead to economic well-being.

Cont.…• In the case of a public good as Fireworks.

This good is not excludable because it is impossible to prevent someone form seeing it and its not rival either because one person’s enjoyment of fireworks does not reduce anyone’s enjoyment.

Free Riders & Cost-Benefit Analysis• Free riders:A person who receives benefit from good but avoid paying for it.(LIGHT HOUSES are what kind of goods??)• Cost-benefit analysis:A study that compares the cost and benefit to society of providing a public good.

Cost-benefit analysis explained.• Till now we have studied that Govt. provides

public goods but the Govt. must decide what kinds of public goods to be provided and in what quantities.

Example:Govt. plans to built a highway, the total benefit should be equal to the benefits gained by its use and to make these decisions Govt. hire a team of economists to conduct a study called COST BENEFIT ANALYSIS

Common resources & Tragedy of Commons

Common resources are like public goods non excludable but they are Rival in consumption as the use of a person effects the benefits of others

so the common resources give rise to another problem, which can be avoided if the policy-makers get concerned about how much to use it.• SOME COMMON RESOURCES1. Clean water and air2. Congested or single roads3. Wild life or seafood

Summarizing the chapter• There are two kind of goods EXCLUDABLES &

RIVAL IN CONSUMPTION• Further division

• Club goods (excludable but not rival)• Private goods (free for none)• Public goods (free for all)• Common resources (rival but nor excludable)

• Free riders• People enjoys the benefits but avoid to pay for.

• Cost benefit analysis• The study of comparison of cost and benefit to a society for a

provided public good.