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ECON 120 Wednesday, December 4, 2019 Lecture Notes Club good is an artificially scarce good. - Opposite of common resource. - Made excludable but lacks depletability. - It is “nonrival in consumption” or nondepletable. Strategic Situations and Decisions: 1 st Issue: Public Good with Private Monopoly or Market Power Make Excludable: Microsoft, Apple (positive price) Or Make Profit Indirectly: Facebook, Google (free price = zero) Determinants: 1. Risk Preference 2. Amount of Cash 3. Market Forecast (strength of network externalities) 2 nd Issue: Bundled Goods Bundle: Microsoft Office, McDonald’s Meal, “all you can eat” buffets” Unbundle: Air travel, a la carte meals Determinants: 1. Consumer preferences 2. Capacity constraints 3. Dissimilarity of consumer groups 3 rd Issue: Add-Ons Standard Plus Set (Group) of specified add-ons: Automobiles Standard Plus Individual Add-Ons: Some appliances Determinants: 1. Cost structure,

ECON 120 Monday, December 2, 2019 Lecture Notes MSB > MSC, Quantity INCREASES MSC > MSB, Quantity DECREASES But MPB < MSC, Quantity = 0, rely on private supply MSB = vertical sums of MPBs Possible Outcomes 1. Too much Q of public good. 2. Too little Q of public good.                                    Common Resource, Non-excludable, depletable (vital in consumption) Examples: Biodiversity, Logging on Public Land, Fishing and Whaling (Dolphins and Whales), Overplanting, Use of Good Air How to deal with common resources: 1. Tax 2. Tradeable permits 3. Privatize (make excludable)

ECON 120 Wednesday, November 27, 2019 Lecture Notes Detrimental Negative Externality: MSC = MPC + incidental cost (Too much Q, fix by tax output, cap, or trade) Beneficial Positive Externality: MSB = MPB + incidental benefit (Too little Q, subsidize output) Excludability: You do not pay : - You do not get that unit of the commodity. - “Free-rider problem” (non-excludable) - Business would not produce the commodity (non-excludable) - Not enough output (maybe zero) of the commodity (non-excludable) Depletion: You get a unit of the commodity -> no one else can get it -> you use it up. Would not stop a firm from producing it. MC = zero, Price ought to be zero Government -> Private Goods (inefficient) U.S. Post Office Postal Service CTA Trash Collecting How come private goods become public goods? 1. Voluntarism too little. 2. An indirect way of profit. - An indirect way of profit: advertisements, use and selling information For

ECON 120 Monday, November 25, 2019 Lecture Notes Quantity Optimizing Output: MSB (Marginal Social Benefit) = MPB (Marginal Private Benefit) Continue Polluting if MSB > MSC and MSB = MSC. Stop Polluting if MSC > MSB. Externality: side effect incidental benefit or cost going to another entity or entities.

ECON 120 Friday, November 22, 2019 Lecture Notes If a good is illegal, the supply curve shifts UP and the marginal cost INCREASES. If a good is illegal, the demand curve shifts DOWN and the quantity will DECREASE. Inefficiencies if the commodity is ILLEGAL: 1. Total Surplus FALLS, Quantity FALLS 2. Quality of Good FALLS 3. Violence One of the most effective ways to increase crime is to declare an addictive commodity ILLEGAL. An addictive commodity is very inelastic. To punish demanders of an addictive commodity: Work on reducing demand by 1. Propaganda “Just Say No” 2. Punish customers (Demand shifts down, Price falls, Quantity falls, Crime falls) 3. Make everything legal.

ECON 120 Wednesday, November 20, 2019 Lecture Notes MB > MC, Quantity Increases Demanders as a group may gain or lose. Business loses as a group (Producer Surplus falls) Theorem: An effective price ceiling on its product is ALWAYS bad for business. An effective price ceiling is bad for the overall economy because total surplus (TS) decreases. Businesses are hit with higher price for one of its inputs (unskilled labor). Minimum wage or higher minimum wage is NEVER good for business. Price of Input INCREASES -> Cost INCREASES If the price of unskilled labor INCREASES, substitute with: - hire more skilled workers - use more computer - AI (Artificial Intelligence) - robots - other inputs - better technology