Rent Interest Profits Chapter 30

I. Private and Public Goods
  A. Private good
         1. Rivalries- only those who will to buy a good can have the benefit
         2. Exclusive- bought by person A, not available to person B
         3. Private goods satisfies individual want,
             public goods satisfies collective wants.
    B. Public good is a good that is non-rivalries and non-excludable
    C. Public Choice by W. Shughart II of Library of Economics and Liberty
    D. Demand for public goods
         1. Demand for public goods is difficult to determine. 
              a. Once provided, everyone may use them. 
              b. The absence of a price mechanism to provide the rationing
                  function means politicians must decide which goods to produce.
         2. Determining goods to produce using cost-benefit analysis
             a. Many costs (MC) are difficult to predict and measure.
             b. Many benefits (MB) are subjective and difficult to measure.
         3. Public-choice-theory-and-the-politics-of-instant-gratification
             9/16/12 econintersect
         4. Our Miss-measured Economy
     E. Cost  Benefit Analysis compare marginal cost with marginal benefit.
         T Watkins of San Jose State
     F. Eisenhower right,  the military industrial complex a real threat

III. Democracy and economic efficiency
   A. Majority rule is often inefficient
         1. A slight majority of people may vote less public spending in an area
             because their perceived benefit is slightly below the good's average
             cost they would pay as a taxpayer.
         2. Those voting for the activity (the minority) would receive a benefit
             substantially greater than the average costs. 
         3. As a result society does not invest in something with a positive total return. 
         4. An example would be people who feel spending on education is not 
             beneficial and vote for less spending in spite of the substantial benefit 
             received by children. 
         5. The public good is voted less money even though total benefit exceeds
             total cost.
     B. Rent-seekers are people attempting to use public policy to secure economic
          rent (Sr)  for themselves at the expense of consumer surplus (Sc) received
          in the marketplace and in some cases, the public interest.

I. Externalities
     A. Externalities are costs or benefits not accounted for in the price of a product
         that accrue to those outside or external to the market place.
     B. Please review Part IV of  6) Government's Economic Functions for an 
         analysis of government action to decrease externality costs and increase
         externality benefits
     C. Econ Concepts in 60 Seconds: Negative Externalities (Spillover Costs)
     D. Coase's Theorem
         1. Analysis by Ronald Coase revealed that government should not get involved
             with disputes over externality costs when property ownership is well-defined
             and the number of people involved is small. 
          2. He demonstrated that individual maximizing behavior would correct these
              problems. 
          3. The government should only be involved when the number of participants
              is so large as to make bargaining costs prohibitive.
          4. For example, the government should not get involved in a noise pollution
              problem near an amusement park because of the small number of people
              involved but should get involved with Midwest acid rain falling into New
              England because of the large number of people involved.
     E. Externalities and Coase Theorem
         1. The market solution
             a. First, taking into account diminishing returns, calculate the economically
                 tolerable level of pollution acceptable to society. This can be done by 
                 comparing the marginal costs to society of  pollution (supply), which 
                 increases with more anti-pollution spending, with the marginal gain to
                 society of a clean environment (demand), which decreases with
                 additional spending.
              b. The resulting quantity of acceptable pollution would be fixed and sold 
                  as "rights" to pollute.
              c. Industrialization causes an increase in the demand to pollute and with a
                  fixed supply, the costs of rights to pollute would increase.
              d. Those who want goods that pollute would simply have to pay!
       2. Other solutions
             a. Taxes and subsidies
             b. Regulation
             c. Moral suasion         
         3. For more insight into tradable rights read Trading the Earth,
             the politics behind tradable pollution rights by Sharon Beder.
   F.  Using liability rules and lawsuits to eliminate externality costs.
         1. Laws and a damage recovery system exist.
         2. Cost, time delays and uncertainty as to outcome hamper this method.