Eminent Domain is sometimes necessary because People will not want to donate their property Marginal Private Costs exceeds their portion of the Shared social benefit. MPC > portion of the MSB Or by holding out They can take advantage of the lack of choice. Ind. Decisions involve trade-offs and thinking on the margin and responding to incentives Decisions will result in both private and social impacts Relate the concept of scarcity to types of good and to the TOC Recognize the MPC/MPB/MSC/MSB to different types of goods Develop both gov’t and free market approaches to solve contemporary TOC Types of Goods Free Riding The Tragedy of the Commons Station 1 Show me the Money!!!! Directions: You have been credited $10. Being that I am a kind and generous person, I agree to double any amount of money that is invested in the “doubling pool” and then divide this doubled amount amongst everybody in the class. All students will receive an equal amount from the doubling pool regardless of what they contribute. For example if $240 was collected I would double it to $480 and divide it equally amongst all students regardless of the contribution. If there were 30 students in the class each student would receive $16. If a student gave $10 – they would now have $16. If a student gave $0 – they would now have $26 If a student gave $5- they would have $21 This is a contest between all three classes. There are two types of winners Class winner Students in the class that donated the largest amount of money will receive a small piece of candy to enjoy during Thursday’s quiz. This will be determined by how much each student receives from the pool of money. Individual winner The individual winner is determine by which student of the three classes ends with the most money. They will be able to enjoy a larger food item (candy bar, bag of pretzels, etc.) of their choice during the test. On a scrap paper you will write two items: Your name Your donation I will only publicly announce the donation. Nobody will ever know how an individual donated. 1. What strategy for the class would maximize the total amount of the money received by each student? If all students donated $10, they would double their money. 2. Did you follow that strategy? If not, why? Many don’t because they realize if they cannot be excluded they will attempt to receive the benefits without the cost. Additionally, others may end not contributing once they realize that others would be benefiting at their expense. 3. Did your class experience a free-rider problem, meaning that students attempted to benefit from the investment of others without contributing their fair share? Station 2 (reading) According to John Stossel, “Every November, schoolchildren are taught about that wonderful day when Pilgrims and Native Americans shared the fruits of the harvest. "Isn't sharing wonderful?" say the teachers. They miss the point. Because of sharing, the first Thanksgiving in 1623 almost didn't happen. The failure of Soviet communism is only the latest demonstration that freedom and property rights, not sharing, are essential to prosperity. The earliest European settlers in America had a dramatic demonstration of that lesson, but few people today know it. When the Pilgrims first settled the Plymouth Colony, they organized their farm economy along communal lines. The goal was to share everything equally, work and produce. They nearly all starved. Why? What was the problem? Free Riding 1. According to John Stossel, when the Pilgrims first settle the Plymouth colony how did they organize their farm economy? What were the results? They created community farms Starvation Death 2. Why do you think some Pilgrims so unproductive? Free Riding If people can all share in the benefit but not have any cost, they will. 3. Why do you think the Pilgrims had more success after they sectioned off the land and privatized the land? Their marginal benefit equaled their marginal cost, they received what they put into it. Free Riding results from public goods. MPC In terms of public goods, a free rider’s individual __________ less his/her portion of the MSB _________. Fill in the blanks with either MPB MPC MSB MSC For example in period 3 There were 20 students The class donated $84 and I double the amount to $168 Each student received back $8.40 For a student who decide to free ride Their MPC= $0.00 Their portion of the share social benefit was $8.40 They will keep going Consider the case where an individual doesn’t want to move. How does their private costs compare to their portion of the social benefits? Keep in mind the financial loss of losing their home is offset by just compensation. Marginal Private Cost ______ > < = Their Portion of the Benefits Free Riding results from public goods. As a result of free riders, many private individuals will not produce public goods. Why? Use marginal cost and benefits in your answer. Because they cannot exclude others from using the good their MC will always exceed their MB This in turn leads to a market failure because the quantity being supplied is less than the quantity being demanded. In one class the non-free rider who donated $10.00 Their MPC= $10.00 Their portion of the MSB= $8.40 They will stop in the future. 4. Other than the game and the Pilgrim story, provide examples goods that might face freeriding problems. Public goods such as lighthouses Vaccines Healthcare reform Articles of Confederation 5. What role could government play in providing the socially optimal quantity of public goods while avoiding free-riding problems? Tax the users Provide the public goods Create mandates and regulations Station 3 Types of goods 2 questions What is the level of excludability? How easy can someone be prevented from using the good or service. What is the level of consumption rivalry? If one person uses the good is it available for other to use? Excludable Private Goods Non- Excludable Common Goods Club Goods Public Goods Rivalrous NonRivalrous Eagles tickets Cable TV Lighthouses Candy The atmosphere Street lights Fish in international waters Pair of pants Roads 16 Excludable Non- Excludable Private Goods Common Goods Cars, Houses, electronics, IPhones, food, clothing, or any product on the free market Rivalrous Rationed by price Fishing waters, grazing lands, Renewable resources Rationed by quotas, licenses, seasons, laws, and regulations Watch of for Tragedy of the Commons Is privatizing the answer? Club Goods Cable TV, swimming pools, mail, movie theaters Non-Rivalrous Artificial scarcity because in many cases supply additional goods doesn’t add to cost Rationed by congestive pricing Public Goods Tornado warning sirens, lighthouses, street lights, national defense Rationed by congestion price, patents and copyrights, laws Watch out for Free Riders The free market will NOT supply it 17 Where the Moose Roam You are a meat and fur trader in the rugged North. As a moose hunter, you are aware of the following facts: Group of 10 or more You are not allowed to speak with any other hunters 1. Each hunting season last 30 seconds 2. If there a fewer than eight moose at the end of a hunting season reproduction will not occur. 3. Given that there are at least 8 moose, the number of moose will double after each hunting season. 4. Even though moose appear cute and friendly, so are your spouse and children. Thus, you want to maximize your “harvest.” 5. You plan to hunt for many seasons but you don’t know how many hunting seasons remain. You want to set the market by capturing the most moose. The winner of each round receives candy. Round 3 The number of the original moose have returned to the forest. You and your fellow hunters will have 2 minutes to strategize methods to maintain the moose population. Once the hunting begins it is just like rounds 1 and 2. Round 5 The forest is sectioned off and each hunter can only hunt in the section that is their private property. If a moose is on your property, he is considered your property. The teacher will enforce private property rights. Each section will start with 3 moose. 1. What were your ideas in round 3? Did the idea(s) work? Why or why not? 2. What is the role of property rights in the allocation of moose? 3. Why were people more likely to exploit the moose population located in the common forest as opposed to the moose that they considered their own property? The Tragedy of the Commons Tragedy of the Commons Each farm has private land and shared common land. The common land can support the grazing of a certain amount of cows. Each farmer can have their cows graze on their private lots or common land. As more farmers use the common land it becomes increasingly depleted. Tragedy of the Commons Each farm has private land and shared common land. The common land can support the grazing of a certain amount of cows. Each farmer can have their cows graze on their private lots or common land. As more farmers use the common land it becomes increasingly depleted. Tragedy of the Commons Each farm has private land and shared common land. The common land can support the grazing of a certain amount of cows. Each farmer can have their cows graze on their private lots or common land. As more farmers use the common land it becomes increasingly depleted. 1. Are people more or less likely to depleted their private property or public property faster? Why? 2. What does the tragedy of the commons tell us about human self-interest and natural resources and public goods? 3. What are some real-life example? Fishing, common fields, global warming, resource depletion, traffic 4. What are some methods of preventing resource depletion? Government or Private ownership? 5. Thinking in terms of cost- benefits why is the tragedy of the commons unavoidable? It is rational (at least in the short run) to serve self-interest. In terms of benefits, individuals who defect receive the entire private benefit. And in terms of cost, individuals share the cost with everybody else. This normally results in a net positive for the defector. Marginal Private Benefit > Portion of shared Marginal Social Cost 6. Are there places in school that suffer from the tragedy of the commons? 1. Are people more or less likely to depleted their private property or public property faster? Why? 2. What does the tragedy of the commons tell us about human self-interest and natural resources and public goods? 3. What are some real-life example? 4. What are some methods of preventing resource depletion? Government or Private ownership? 5. Thinking in terms of cost- benefits why is the tragedy of the commons unavoidable? 6. Are there places in school that suffer from the tragedy of the commons? 6. Are there places in school that suffer from the tragedy of the commons? Relate to an essential Question from unit 3 Working with your group of three complete the following exercise: 1. Read the short description for each topic. 2. Determine if there could be a government solution to the issue. Regulations, laws, quotas, restrictions, fines, etc. Come up with a solution but be prepared to discuss the costs and benefits of your idea. 3. Determine is some level of privatizing will work. How could you accomplish this? 4. What do you feel would work best. Explain your logic. Real-life Example Grand Banks Fisheries Bluefin Tuna The atmosphere Gulf of Mexico Dead Zone Traffic Congestions Unregulated Logging Government Solution Free Market Solution Best Many people suggest that private property and private property rights are the solution to the problem. Of the three options below which would be the easiest to divide into private property and which would be the most difficult? Why? Fish in the sea Forest on a mountain The atmosphere Relate this to pollution by companies and/or nations without regulations Spending in Congress Deals that are too good to pass up in stores. Teacher copy numbers increasing before copy restrictions Bank runs Gasoline before a hurricane There is also competition in the sense that people will think . . . “If I don’t use it someone else will.” Relate what you learned about the different types of goods and the T.O.C. to either scarcity, incentive, or competition. In situations that are considered tragedy of the MPB commons an individual’s __________ exceeds MSC their portion of their shared _____________. Relate to an EQ from unit 3 If time allows Station 4 Fishing Game 1. There are four contestants- each has a magnetic fishing pole. 2. The game is divided into two rounds Goal: a. The first 1 minute seconds (spring) Green Fish are worth $50 Red Fish are worth $100 Gold Fish are worth $250 Blue Fish are worth $500 Each Fisherman wants to set the market by catching the most fish. After each year fish will need to reproduce. b. The second 1 minute (fall fish are bigger) Green Fish are worth $100 Red Fish are worth $250 Gold Fish are worth $500 Silver Fish are worth $1000 Winners for each round receive chocolate If there are two of each species at the end of the year all receive a pack of smarties Round 3 Each fisherman will be able to fish in his/her section of the ocean Each area of the ocean will have 4 green fish 4 red fish 4 gold fish 4 silver fish Predict what will happen 1.How did the self interest of each fisherman impact what fish were caught first? 2.If there was a round 3 predict what would happen? 3. Develop a solution to this problem either through the government or the free market Station 1 – show me the money 1. What strategy for the class would maximize the total amount of the money received by each student? 2. Did you follow that strategy? If not, why? 3. Did your class experience a free-rider problem, meaning that students attempted to benefit from the investment of others without contributing their fair share? Station 2- types of goods Why will free markets not provide public goods? Working with your group of three complete the following exercise: 1. Read the short description for each topic. 2. Determine if there could be a government solution to the issue. Regulations, laws, quotas, restrictions, fines, etc. Come up with a solution but be prepared to discuss the costs and benefits of your idea. 3. Determine is some level of privatizing will work. How could you accomplish this? 4. What do you feel would work best. Explain your logic. Real-life Example Grand Banks Fisheries Bluefin Tuna The atmosphere Gulf of Mexico Dead Zone Traffic Congestions Unregulated Logging Government Solution Free Market Solution Best 1. Are people more or less likely to depleted their private property or public property faster? Why? 2. What does the tragedy of the commons tell us about human self-interest and natural resources and public goods? 3. What are some real-life example? 4. What are some methods of preventing resource depletion? Government or Private ownership? 5. Thinking in terms of cost- benefits why is the tragedy of the commons unavoidable?
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