Question

2) What do we mean by ‘rivalrous in consumption’?

3) Public Goods and Common Resources share one of the above 2 characteristics. Which is it – nonexcludable or rivalrous in consumption?

4) For each of public good & common resource, see if you can answer the following

a. On an INDIVIDUAL level, what is true about the MB (for the individual) vs. the MC for consuming / providing the good. In other words, for a common resource, what is true for an individual when he / she is deciding to consume an additional unit of the resource, in terms of MB vs MC? Also answer for provision of one unit of Public Good

b. Your answer is (a) leads to the following problems that we associate with common resource and public good market failures – overconsumption and Free Riders. Briefly explain.

c. On a SOCIETY / AGGREGATE level, we look at Net Social Benefit (NSB) and Net Social Cost (NSC). If NSB > NSC than it makes rational sense to undertake that action. In the case of common resources, if we use ∑MBi (i.e. the sum of all individuals’ MB) for consuming an additional item of the resource as the NSB (i.e. we are adding up all the additional utility that each consumer gets from the units of the resource that they consume); this is less, by far, than the NSC of allowing everyone free access to the resource. This implies that the NSC of allowing everyone free access cannot be measured by ∑MCi (i.e. the sum of all individuals’ MC). So, what is the NSC of unfettered access? Why do consumers not realize their fair share of the NSC?

d) On a SOCIETY / AGGREGATE level, we look at Net Social Benefit (NSB) and Net Social Cost (NSC). If NSB > NSC than it makes rational sense to undertake that action. In the case of Public Goods, if we use ∑MBi (i.e. the sum of all individuals’ MB) for consuming an additional item of the resource as the NSB (i.e. we are adding up all the additional utility that each consumer gets from the units of the resource that they consume); this is much greater than the NSC of providing this resource. Yet, these goods do not get provided. Is this because consumers are not willing to burden their fair share of the NSC? Discuss

Answer 1

Question no 2 answer :-

Consumption rivalry has two possibilities -- rival or nonrival.
Rival: A good is rival in consumption if the consumption by one person prevents the simultaneous consumption by another, thus imposing an opportunity cost on others. A candy bar provides an example of rival consumption. If Roland Nottingham eats a candy bar, then Victor Thurgood cannot eat, consume, or enjoy this same candy bar. Roland's consumption prevents Victor's consumption.

Nonrival: A good is nonrival in consumption if the consumption by one person does not prevent the simultaneous consumption by another, thus does not impose an opportunity cost on others. A fireworks display provides an example of nonrival consumption. If Roland Nottingham watches a dazzling fireworks display lighting up the Shady Valley night sky from his front porch, doing so does not preclude Victor Thurgood from enjoying the same fireworks display from his own backyard. Roland's consumption does not prevent Victor's consumption.

Consumption rivalry is a key characteristic that determines if a good can be consumed simultaneously by two or more people or if the consumption by one person prevents the consumption by another. The two alternatives of consumption rivalry are rival consumption and nonrival consumption. Rival consumption means two people cannot consume the same good simultaneously and nonrival consumption means they can.
A related characteristic of goods is nonpayer excludability, which is the ability to exclude nonpayers from consuming a good. These two characteristics give rise to four types of goods -- private (rival consumption and nonpayers can be excluded), public (nonrival consumption and nonpayers cannot be excluded), common-property (rival consumption and nonpayers cannot be excluded), and near-public (nonrival consumption and nonpayers can be excluded).

Consumption rivalry determines whether or not efficiency is achieved at a positive, nonzero, price -- something accomplished with market exchanges. The opportunity cost caused by rival consumption means efficiency is achieved if the price is positive. With no opportunity cost from nonrival consumption efficiency is achieved if the price is zero.

Example:- rival - food and clothing car house ( private goods) , ( common goods ):- fish in open sea atmosphere public waterways .

Nonrival:-( low congestion goods)- cable television satellite radio online WSJ ,( public goods)- tax based nuclear umbrella the law , indirect private funding search engine on the air tv .