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Week 13 Tutorial Solution

Public goods are non-rival and non-excludable, meaning that one person's use does not decrease availability to others and people cannot be prevented from using it. Private goods are rival and excludable. Common resources are rival but non-excludable, while natural monopolies are non-rival and excludable. Mixed goods create external costs or benefits. The free rider problem results in underprovision of public goods by private markets since they cannot exclude non-paying users. Education provides benefits beyond those directly receiving it. Vaccination creates herd immunity but private markets do not account for this external benefit.

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Omisha Singh
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33 views

Week 13 Tutorial Solution

Public goods are non-rival and non-excludable, meaning that one person's use does not decrease availability to others and people cannot be prevented from using it. Private goods are rival and excludable. Common resources are rival but non-excludable, while natural monopolies are non-rival and excludable. Mixed goods create external costs or benefits. The free rider problem results in underprovision of public goods by private markets since they cannot exclude non-paying users. Education provides benefits beyond those directly receiving it. Vaccination creates herd immunity but private markets do not account for this external benefit.

Uploaded by

Omisha Singh
Copyright
© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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PUBLIC GOODS

1. Public goods are both non-rival and non-excludable, consumed simultaneously by everyone,
and no one can be excluded from its benefits.

Private goods is both rival (if one person’s use of it decreases the quantity available for someone
else) and excludable (only the people who pay for it are able to enjoy its benefits.)

A common resource is rival ((if one person’s use of it decreases the quantity available for someone
else) and non-excludable (it is impossible to prevent anyone from benefiting from it.)

Natural monopoly goods - is nonrival and excludable. A special case of natural monopoly arises when
the good or service can be produced at zero marginal cost. Such a good is nonrival. If it is also
excludable, it is produced by a natural monopoly e.g., the Internet and cable television

Mixed goods is a private good the production or consumption of which creates an external cost or
benefit.

2. Free rider problem- The absence of an incentive for people to pay for what they consume.
If a private firm tried to produce and sell a public good, almost no one would buy it.
The free-rider problem results in too little of the good being produced by a private firm.
Public goods are characterized by the inability to exclude non-paying consumers. A private
firm would not receive a sufficient level of revenue t provide the efficient level of the public
good.
3. Education enables more people to conduct to research which expands the boundaries of
human knowledge resulting in new discoveries. Education brings benefits to many people
other than those who obtain the education.
4. (a)private benefit- Lower risk of getting the virus. The person who has been vaccinated enjoys
a disease prevention benefit. The people who have been vaccinated will not spread the
disease to others. A private market for vaccination fails to take account of external benefits
as a result a private market will under-provide vaccination.
(b) (graph)
(c) -public provision
-private subsidies- supply curve shifts to the right.
-vouchers

5.
6. firefighting service- non-excludable, rival
a Starbucks coffee- excludable, rival.

7. -private
-common resource
-private

8. - negative externality
- no externality (no externality)
- positive externality
- negative externality
- positive externality
- negative externality

INCOME INEQUALITY
1. Measure of economic inequality that shows the distribution of income or wealth.
2. Increase in the demand for high-skilled workers which eventually increases the wage rate
and income for high-skilled workers on the other hand demand for low-skilled workers
decreases which decreases their wage rate and income.
3. Income is distributed less equally in UK than in Australia. The Lorenz curve for the
Australian economy lies closer to the line of equality than does the Lorenz curve for UK.
The closer the Lorenz curve is to the line of equality, the more equal is the income
distribution.

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