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--1.6.1 FREE & PRIVATE GOODS---
--1.6.1 FREE & PRIVATE GOODS---
"Why do you think this guy has no customers?"
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"That's right, everyone already has more than enough to satisfy their wants, and there is no way to stop them consuming it. In other words, it isn't scarce relative to demand, even when offered at £0, and it is non-excludable." Hence, it's impossible to charge a market price."
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"In addition, as it isn't scarce, its consumption doesn't come at the expense of any alternative use, as there is more than enough left over for others when it is used; in other words, it has no opportunity costs and isn't rivalrous in consumption."
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"We know that economics is the study of how societies decide to allocate scarce resources with alternative uses, so what happens if a good isn't scarce relative to demand and has no opportunity cost?" "If everyone can have as much as they want, do any allocation decisions need to be made?" "Should economists even concern themselves with such goods?"
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"The answer is 'NO!' and these goods are known as 'FREE GOODS' and generally fall outside the central focus of economics because they do not create an economic problem."
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"For this reason, economists are primarily interested in 'PRIVATE GOODS' that are the complete opposite."
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--TASK--
"Read the text above and explain what Milton Friedman meant when he used the famous quote below."
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--1.6.2 PUBLIC GOODS--
--1.6.2 PUBLIC GOODS--
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"Ok, so we just determined that free goods are non-excludable, non-rivalrous, and not scarce relative to wants, whereas private goods are excludable, rivalrous, and scarce relative to wants, so now let's look at a good that is non-excludable, non-rivalrous, and scarce relative to wants."
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"PUBLIC GOODS are defined as goods or services that have the following 3 CHARACTERISTICS:
(i) NON-EXCLUDABLE
(ii) NON-RIVALROUS.
(iii) SCARCE.
is scarce relative to their wants
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"But why is it a market failure, Mr. B?"
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"Look, every time I set group projects where each group makes a sharable online resource (e.g, revision website, past-paper kahoots etc...), it has ALWAYS ended with only one or two complete, usable resources?" "Can you think why this is?"
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"Group project: Revision website"
"Look at this image and tell me if it feels familiar. Were you the student suffering from non-contributing group members, or were you one of these 'free riders'"? "Why would she put in maximum effort if she knew she had to share the grade?"
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"Well, given the vote, many students would simply prefer to work alone, as all their extra contribution will not be rewarded because they can't 'exclude' (non-excludable) these free riders from sharing in the grade that they worked for; hence, you would expect opportunities for this type of group project to be underprovided, despite it being a favorite activity for most."
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"...furthermore, the fact that the online revision resource can be used by everyone for free without reducing access for others (non-rivalrous) would surely incentivize other groups to think, "We can just access the other groups; it's not like it will run out and they don't lose anything, so we don't need to bother doing a good job, we will just use their one!"
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"Now imagine there is a good or service that, once you purchase it at your own cost, you can't 'exclude' others from benefiting from it, and it can be endlessly consumed by others Would you buy it in the first place?"
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"Unlikely, right? Which basically means no producer will make it. So despite the fact that people want it, no market will exist to provide it; hence, the market has failed, and DIRECT GOVERNMENT PROVISION is required."
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--TASK--
"Using the past paper question and MS below, choose your own example of a public good and complete a model answer."
--1.6.3 MERIT GOODS--
--1.6.3 MERIT GOODS--
"How has this 'producer of music' impacted others?"
"How has this 'consumer of deoderant' impacted others?"
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"You should now realise that these 'external' impacts can be both positive, adding to the benefits of others, as well as created via the consumption of a good or its production!"
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"Let's look at some definitions!"
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EXTERNALITIES occur when the actions of consumers and producers give rise to SIDE-EFFECTS that impact THIRD PARTIES who are not part of these activities."
--1.6.4 DEMERIT GOODS--
--1.6.4 DEMERIT GOODS--
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