Government in the national economy

Public goods
Public goods

 non-excludable (individuals
cannot be excluded from use
or could be enjoyed without
paying for it)
 non-rivalrous
(where use by one individual
does not reduce availability to
others or the goods can be
effectively consumed
simultaneously by more than
one person)
Examples of public goods
 Healthcare
 Education
 Defence
 Emergency response
(fire)
 Library
Samuelson: theory of
o public goods
Quiz 1:
Public, private or mixed???
 Street illumination
 Electricity  Healthcare
 Free road  Education
 Toll road  Courts
 Public transport  Parks
 Healthcare  Street cleaning
 Education  Environment protection
Public goods: mixed and purely public

 Mixed  Purely public

 Healthcare  Defence
 Education  Legislation
 Bridge  Emergency response
 Public transport  Street illumination
Social marginal benefit
What is the effective quantity of goods (G) and hoe much is
each group (A and B) ready to pay for G?

 G – the number of goods (in thousand)

 P – the price each group is ready to pay (in
thousand)
 The goods G are in demand by two groups
 The demand by group A can is represented by the
function Р = 5 - G
 The demand by group A can is represented by the
function Р = 10 - 0,5G
 Marginal costs are presented by the function МС =
2,5G.
Role-play: public
goods
The free-rider effect
The Prisoner’s dilemma
Public goods and the prisoner’s
dillemma account for the government
intervention in the economy
Functions of the govenment

1. Defence
2. Legislation and courts
3. Infrastructure
4. Stabilizing economy
5. Wellfare state
6. Tackling Market failure
• Lack of public goods
• Presence of externalities
• Tendency to make a monopoly
 A budget is an estimation of revenue and
expenses over a specified future period of
time
 Budget deficit = situation when expenses
are higher than revenue
 Budget proficit = situation when revenue is
higher than expenses
Role-play: budget
sequestration
MP groups
 Students

 Environmentalists

 The retired

 Employees at the agricultural company

 Sole-traders
Project Problem to tackle Expenditure ($ 000)

1. Construct the recreational zone To clean the territory. 150

(playground), convert the pond into To establish recreational facilities
a brand-new swimming pool

2. Buy agricultural machinery to support Create jobs 100

the local agricultural company: 100
-harvester
-tractor

3. Construct the water treatment facilities Protect environment 150

to clean the river from the sewage
waters

4. Renovate the disco club. To appeal to the youth 50

Organize disco parties 50

600
 MPs 1. Construct the 2. Buy agricultural 3. Construct the water 4. Renovate the
recreational zone machinery to treatment facilities disco club.
(playground), support the local to clean the river Organize disco
convert the pond agricultural from the sewage parties
into a brand-new company: waters
swimming pool -harvester
-tractor

Students

Environmental
ists

Sole-traders

Agricultural
workers

The retired

Total