chapter 11 of the book PRINCIPLES OF ECONOMICS including key poings

1. Public Goods &
Common Resources
CHAPTER 11 PRESENTATION

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

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

4. 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.

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

6. 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 defense
2. Fighting poverty
3. Basic Research
• Common resources:
• Goods that are rival but not excludable.
• Club goods:
• Goods that are excludable but not rival.

7. 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 noncompensated 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.

8. 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.

9. 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.

10. 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

11. 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 RESOURCES
1. Clean water and air
2. Congested or single roads
3. Wild life or seafood

12. 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.