|
|
Public Goods and Services
by Svetlana Yurkovskaya (Belarus)
LESSON DESCRIPTION
Students compare and define private and public goods. They receive
money and must make a decision about paying for the heating in the classroom.
This activity reinforces the concept of public goods and helps students identify
and explain the free-rider problem. This lesson should be taught when the
weather is cooler or cold.
AGE LEVEL
13-18 years old
CONCEPTS
- private goods and services
- public goods and services
- non-exclusion
- shared (non-rival) consumption
- free-rider
- taxes
CONTENT STANDARDS
There is an economic role for government to play in a market economy
whenever the benefits of a government policy outweigh its costs. Governments
often provide for national defense, address environmental concerns, define
and protect property rights, and attempt to make markets more competitive.
Most government policies also redistribute income.
BENCHMARKS
Public goods and services provide benefits to more than one person at
the same time, and their use cannot be restricted only to those people who
have paid to use them.
If a good or service cannot be withheld from those people who do not pay
for it, providers expect to be unable to sell it and therefore will not produce
it. In market economies, governments provide some of these goods and services.
OBJECTIVES
- Students will define public goods, private goods, free rider,
and taxes.
-
Students will explain the characteristics of public goods.
- Students
will compare public goods with private goods.
- Students will define
and explain the free-rider problem.
- Students will explain why governments
provide public goods.
TIME REQUIRED
One to two class periods
MATERIALS
- Copies of Activity 1, cut apart, to provide five duck dollars
for each student
-
One copy of Activity 2 for each student
- Transparencies of Visuals
1 and 2
- Small cardboard box labeled “HEATING”
- A variety of goods
such as candy, packages of chips, boxes of raisins, cans of soda
pop, priced in amounts of one duck dollar to five duck
dollars
- Activity 1 pdf - 9kb
- Activity 2 pdf - 9kb
- Visual 1 pdf - 10kb
- Visual 2 pdf - 9kb
PROCEDURE
- Explain that most modern (developed) economies are mixed
economies. Mixed economies are those that provide goods and services through
markets and through federal, state, and local governments. The purpose of
this lesson is to analyze the differences between private goods and services
and public goods and services in order to explain why governments provide
public goods and services.
- Ask students to compare two goods, an apple and
police protection,
on the basis of the following questions.
- If you don’t pay for an apple at the store, can you be kept
from receiving an apple at the store? (Yes.)
- If you don’t pay for police protection, can you be prevented
from receiving police protection? (No.)
- If one person eats an apple, does this prevent others from
eating the same apple? (Yes.)
- If one person receives police protection, does this prevent
others from receiving protection? (No.)
- Who benefits from consuming an apple? (the person
who consumes it)
- Who benefits from police protection? (all people
living in a community)
- Point out that an apple is an example of a private good.
A private
good is one for which
- each unit produced can be priced and sold to individuals,
- each unit
benefits the buyer exclusively,
- those who don’t pay can be excluded
from owning/having the good.
Private goods are produced and sold
by firms through markets.
- Ask students for examples of private goods that they and their families
consume. Record their answers on the board. (food and clothing items,
paper,
pencils, dry cleaning, car repair, and so on)
- Remind students that the purchase
of a private good in the market will benefit only the buyer. Markets
are ideally suited to the provision
of private goods. Buyers know that when they purchase such goods,
the price that they pay gives them the rights to exclusive use of and benefits
from
the product. Remind students that if you pay for and eat an apple,
no one else can eat the same apple. The apple is a completely private
good.
- Have students look at the examples of private goods listed on the
board and determine whether these goods have the characteristics of private
goods.
- Explain that police protection is not a private good – it
is a public good. If a very rich family hired its own police force to improve
its safety in an area, others in the area will benefit from the safer
environment
even though they didn’t pay for the protection. Many can share the
consumption of police protection, and those who don’t pay can’t
be excluded from benefiting.
- Explain that a public good is one that
is consumed collectively by people whether or not they pay for
the good. In other words, people
share the consumption of public goods (shared consumption) and
non-payers can’t
be excluded from using the good (non-exclusion). Ask for examples
of other public goods, listing answers on the board.
- Display Visual 1 and remind students that public goods have two basic
characteristics, shared (i.e., non-rival) consumption and non-exclusion.
Shared consumption means that many people receive the benefits
of the good at one time. The benefits of private goods, such as apples or
computers,
are usually received and used up by one or a few consumers. However, many
share the benefits of police protection or national defense.
- Explain that
non-exclusion means that people cannot be prevented from
using a good, even if they did not pay for it. All people receive
the benefits of police protection and national defense whether
they paid taxes or not. To receive the benefit of an apple or a computer,
a person
must pay for the apple or the computer.
- Have students look at
the examples of public goods listed on the board and determine whether
these goods have the characteristics
of shared consumption and non-exclusion.
- Refer to Visual 1 and read the definitions of public and private
goods.
- Tell students that they will participate in an activity.
Note: In this activity, heat is a public good. In the real world,
heat in a person’s home or in a business is a private good.
People who don’t pay for the heat can be excluded from having
heat.
- Explain the following.
- Each student will receive five duck dollars that may be spent
buying goods in the Duck Dollar Shop. The shop offers various
snacks at different prices.
-
It is also necessary to pay to heat the classroom. To maintain a temperature
of 68 ° Fahrenheit,
the teacher must pay $60 to the principal.
- The
actual temperature in the classroom will depend on how much money
students contribute to pay the heat.
- Each student must decide
how to spend his or her money.
- Students will place heating
contributions in a box labeled “HEATING.”
- Make sure that students understand what will happen in the activity.
Place the box for collecting funds for heating on a desk or table near the
teacher’s desk. Give each student five duck dollars. Remind them that
they must make decisions about spending their money.
- Explain that students
will have about ten minutes to make their decisions. Display the goods
for sale on a desk or table. Act as the shopkeeper
and sell goods and services at the Duck Dollar Shop.
- At the
end of ten minutes, have one student calculate the revenue received
at the Duck
Dollar Shop and have another calculate the
amount collected for heating. Discuss the following.
- If individuals
did not pay for heating the classroom, would they still benefit from
heating because they are able to work and study in a warm
classroom? (Yes.)
- In cold weather, would you prefer
to study in a cold or a warm classroom? (warm)
- If a new student
became a member of the class today, would he or she still benefit
from a warm classroom
even though he or she hadn’t
paid? (Yes.)
-
Have the two students report the amount of revenue collected from sales
at the Duck Dollar Shop and the amount collected for heating.
- Point out
that not enough money was collected to maintain a temperature of
68° Fahrenheit,
so the heat will be turned down the rest of the day.
- Read the following
example and record the calculations on the board.
If there are 20 students, the class must pay $60 to maintain a temperature
of 68°F, so each degree of warmth costs about 88¢ ($60/68° =
$.88). If the total sum of money received from students for heating
was $30, then the temperature in the classroom could only be about 34°F
($30/$.88 = 34°), and students and teachers would have to wear gloves,
hats, and jackets in order to work in the classroom.
- Discuss the following.
- In this activity, how is heating in the classroom
like a public good? [Those who don’t pay for heat can’t
be excluded from benefiting from the heat (non-exclusion). It provides
benefits to more
than one student
at the same time (shared consumption).]
- Is heating in a home or
business a public good? (No.) Why not? (People who don’t
pay for heat in their homes or businesses can be excluded from receiving
heat.
Other people outside the homes
or businesses do
not share in the consumption.)
- Each of you could choose to contribute
to the cost of heating. How many of you, who benefit from warm temperatures
in the classroom,
contributed?
(Answers will vary; however, not many were likely to pay for heating.)
- Earlier, all of you indicated that you enjoyed working in a warm
classroom. Why didn’t you pay so that you could have a warm
or warmer classroom? (Maybe they wanted to spend their money on
treats, and they
hoped that someone else would contribute to pay for the heat.)
-
Explain that in this activity, even though heat was socially desirable (everyone
wanted it), it could not be effectively provided in a private market because
people who didn’t pay couldn’t be excluded and everyone could
benefit from the heat at the same time.
- Explain that when people in the
classroom benefit from heating but do not contribute to pay for heating,
they are called free riders.
Free riders are people who benefit from something for which they didn’t
pay. Generally, the problem of free riding occurs when individuals
refuse to share in the cost of providing a public good. Discuss the following.
-
Do you think that neighborhood streets should be lighted
at night?
(Answers will vary but many will say yes.)
- If everyone in an area agrees
that this is important and everyone
living in the area is asked to contribute money to provide
lighting, what might happen? (Some people won’t be able to
or will be unwilling to pay for the lights.)
- If your family pays
for a light in front of your home/apartment, who will benefit?
(everyone who is able to see better, walk
better, and feel safer because of the light)
- Will those
who didn’t pay for the light benefit? (Yes.) Is there
any way that they can be excluded from consuming the benefits
of the light? (No.)
- What problem is this? (free riding)
- What would happen if everyone
in the neighborhood chose to free ride? (There would only
be one light; the one in
front of your home.)
- Why don’t private firms have incentives to
provide public goods? (They wouldn’t be able to exclude people
who didn’t pay.)
- Explain that public goods are socially desirable and cannot
be effectively provided in private markets because people who don’t
pay can’t be excluded and many people can share the consumption of
the good. Generally, people expect governments to provide public goods.
- Explain that taxes are required payments to government.
When governments collect taxes, they use part of the revenue to provide
public goods. These
are goods that benefit many people at one time and from which those
who don ’t pay can’t be excluded.
- Ask for other examples of public
goods that governments provide. (national defense, flood protection,
roads, bridges, lighthouses, fire
protection, police protection, parks)
Closure
Review the main points of the lesson with the following.
- Define a private good. (A good or service for
which each unit produced can be priced and sold to individuals so that each
unit benefits the buyer exclusively and those who don’t pay can be
excluded from owning/having the good.)
- Give some examples of private goods.
(apple, shoes, shirt, pencil, desk, theatre ticket)
- Define public goods.
(A good or service that is consumed collectively by people whether or
not they pay for the good. In other words,
people share the consumption of public goods and those who don’t pay, can’t
be excluded from using the good.)
- What is non-exclusion? (the inability
to exclude someone who doesn’t
pay for a good or service from benefiting from that good or service)
- What is shared consumption? (many people benefiting from the consumption
of a good or service at the same time)
- Give examples of public goods.
(national defense, police protection, streetlights, roads)
- What is
a free rider? (someone who consumes a good or service without paying
for it)]
- Why aren’t public goods provided in private markets? (Producers
can ’t exclude those who don’t pay.)
- Who provides public goods?
(governments)
- How do governments pay for the provision of public
goods? (collecting taxes)
- What are taxes? (mandatory payments to
government)
Assesment
Distribute a copy of Activity 2 to each student. Tell students to read
the directions and categorize the goods listed as public or private.
Answers are on Visual 2.
Have students contrast the characteristics of public goods with private goods.
Extension
Have students think about why the free-rider problem is more serious
in large groups than it is in smaller groups. (Information about consumers
and their preferences is more difficult to obtain as the size of the group
increases. Anonymity increases the incentives to be a free rider because
it is less likely that a person ’s behavior will be revealed to others.)
|
Old MacDonald Had a Farm
Goods and Services: Some are Private, Some
are Not
Scribe for Productivity
Uncle Sam’s Checkbook
Scarcity and Choice
Public Goods and Services
|
