So, like I said, common resources and public goods are gonna need help, Right? They don't work just by themselves. And now let's see why that is. So, first, let's talk about the problems with public goods, public goods are gonna are gonna suffer from what we call the free rider problem. Alright, so public goods, if you remember, these were the ones that were non rival and non excludable, and we're gonna see on this page, we're gonna be talking about non excludable goods right here, we're talking about public goods below, we're gonna talk about common resources, both of are non excludable, and that's where the problems come in. Okay. So, first, public goods suffer from the free rider problem. Okay. And we're gonna see that in a private market, public goods are going to be under supplied. Okay. If we just leave it up to the private market to supply these goods, it's not gonna happen, right? They're going to be under supplied and we're going to see an example why. So, we're gonna talk about free riders and the problem, the free rider problem. Right? So a free rider is a person who receives the benefit of a good, without paying for it. Okay. And I'm sure you guys have all been dealing with free riders throughout your college career. Right? Every time you have a group project, guess who ends up doing all the work, Right? Probably you and they're all just free riding, they're like, hey, that person does really good work. And I know that even if I don't do anything, they're gonna do all the work. Right? So they're looking for that free ride? They're not going to put in any effort, but they want to get that high grade. Cool. So let's go to this example of a fireworks show. We've talked a little bit of how a firework show could be a public good right? It's kind of tough to exclude someone from c being a public from seeing a fireworks show, right? Because uh you know, it's up in the sky, What are you gonna build a giant wall to keep people from seeing it? It's gonna be pretty difficult, right? And it's so it's non excludable and it's also non rival, right? Because me watching the fireworks doesn't stop you from also enjoying the same fireworks. Cool. So, we'll see fireworks as a public good here. So in our example, we've got dynamite bill. He loves to put on fireworks show. And he wants to provide this show for a small town for the price of $500, right? He wants to put up a firework show for a price of $500. And in the town we've got 100 people living in town. And they would each value this show, let's say they would say, well, I would probably pay like $10 for that show. Um But when they think about it, they're like, you know what if I just stand outside my house, I could see the show anyways, so why would I buy a ticket? So what we're gonna see is that the townsfolk are gonna try and get a free ride here, Right? So instead of saying that they would value this show at $10 they would probably undersell it. They'd be like fireworks. I don't really care for fireworks, It's not really my thing, but in their head they're like, oh man, I I I really hope there's a fireworks show, right? But publicly right there trying to get that free ride. If they can see the fireworks for free and then keep that money, they're better off, right? They can spend that money on something else and get a fireworks show. Life would be good. Right? So the townsfolk would probably say that they don't care about fireworks. They wouldn't pay for a fireworks show, right? They would likely pay zero. That was that's their kind of mentality here. So, what do we see? We see that the free rider problem prevents the private market from supplying these goods, Right? Because what, what? We see these people all value the show at $10 right? They truly value it at $10. So we see that the 100 people times the $10 they value it. We could see there's like this $1000 benefit, that could happen if people, if this fire works show went on, right, they all get this $10 worth of this satisfaction And dynamite bill wants to put the show on for only $500, what a steal, right? There's all this value that could be created. But since people don't want to pay for something that they could probably get for free, they're not gonna wanna pay. So this wouldn't happen, right? Dynamite bill is not gonna be able to sell the tickets to get this to happen because people want to get that free ride. So, what happens with these public goods is generally that the government gets involved when we're dealing with public goods, and they're going to provide the public good. So long as that marginal benefit from the good is greater than or equal to, right? It has to be at least greater than or equal to the marginal cost of providing that good. So, let's see in this example, what what could the government do? The government could come in and put on like a small tax on all the residents, Right? There's 100 residents there And there's uh $500 that they need for the show. So, the government could come in and tax all five all 100 residents, $5, right? If every resident paid $5 in tax, the government would raise the $500, right? So, the government can force this payment, right? They see that there's this benefit to the fireworks show to all the citizens. They put a tax of $5. They raised the $500 from the citizens, and they hired dynamite bill, right? So in this case, the citizens were able to get that value, they still value it at $10, right? They're still getting more value than they put into this tax. And dynamite bill is gonna put on the show, right? So the government stepped in here and made it possible for this public good to be available. So what we're gonna see is that generally when we have public goods, the government is going to be the one providing them alright? Or making them able to be provided. Alright, cool. But that's not to say that all public goods have to be some sort of sick situation like this. We'll see some examples, especially in small settings where we'll have public goods um that the government's not involved. But the main takeaway here on the grand scale, governments are generally going to provide public goods and it's gonna be this qualification, as long as the benefit exceeds the cost of the good. Cool. So that is how we see the free rider problem affecting public goods. In the next video, let's talk about common resources and the tragedy of the commons. Cool, let's do that. Now

Alright guys, I haven't told you this before, but I secretly have a passion to become a screenplay writer. Okay, I love live theater and this is my true passion is to create live screenplays and I've got one here for you. I've kind of got a synopsis for one, I've kind of been playing out in my head and I kind of want to relate it to you and see what you guys think. All right, so let's talk here about common resources and the tragedy of the commons. Okay, this is gonna be the theme of my play. So the tragedy of the commons. Remember when we were talking about common resources, these were things that were rival and non excludable, right? So when something's rival, that means if I consume it, you can't consume the same thing, right? A great example was the fish in the ocean, right? Fish in the ocean. So if I go out and catch a fish out there in the ocean, you can't catch the same fish, right? But no one can keep us from going out in the ocean and catching them, that's why they're non excludable. So you can imagine over time um the fish are gonna be depleted and that's what we see with common resources. Common resources tend to be overused, Right? So let me go out, go ahead and let's dive into my five act play. This is a tragedy called Macbeth, Macbeth by brian. So act one enter johnny clutch, right, johnny clutch is moving to this small paradise town of Spa, small town, right, johnny clutches a shepherd. He's arriving to a small town with his two sheep? Because he hears of this wonderful utopian green grazing land where the grass is so fruitful and so full of nutrients that the sheep are so happy to live here. Right? So johnny clutch arrives in small town with his two sheep, high hopes right for his wonderful life as a shepherd. Act two, johnny brings his sheep there and his sheep are grazing in this wonderful pasture, eating this, eating this wonderful grass and growing and becoming big strong sheep with beautiful beautiful wool, making the best wool in the world, right? And johnny goes on shearing his sheep and he's making tons of money selling this special wool right from the small town pastures, Act three enter other people. They hear of all these great profits in small town, right? All the great profits of all the shepherds here in small town and people start moving to small town because they hear about this grazing land and how great it is, right, so more people come to graze their sheep. In small town, Act four, there's so many sheep, we see that we see the field full of sheep, there's hundreds and hundreds of sheep, all eating the grass there, just eating and eating and eating and you see all this grass, it's not there anymore, it's starting to become barren. The grass has been eaten away, you just see dirt patches everywhere, the fields become barren, Act five. The sheep die, and because the sheep die, everybody dies, what do you think? Pretty good, Right. This is a pretty good tragedy that I've just unfolded for you? Well, this is the tragedy of the commons, right? What we see is that when we have this common resources, in this case we have this common resource of the common grazing land, right? There was this grazing land that was available for everybody to use, there was since it was available for everyone, no one had a personal um reason to not use it. Right? So johnny saw his personal benefit from bringing his sheep there and grazing, right? And as johnny made more money, maybe he bought more sheep and he kept grazing right? He saw that all this potential he had from using this grazing land. But what ends up happening is that it gets overused, right? Since there's no clear, no nobody is stopping johnny from using the grazing land or anybody else, everyone's gonna use it as much as they can until it's depleted, Right? And that is the tragedy of the comments that they're going to be overused. So what's the moral of the story here? Why did this? Why did this arise? So the tragedy of the commons arises because there is an externality that we're not taking into account, right? And the externality is the cost of this field, right? The cost to the field, The grass is no longer there, there's this cost being posed on society. When you're sheep is grazing, right? Every time your sheep grazes it takes away from this resource, it causes this externality. So how could we have solved this problem? Remember when we talked about externality, it all came down to property rights. In this case, there's no clearly defined property rights, right? This field is just common land that anybody can use. But let's say the field had belonged to johnny, right? If johnny owned the field, he would have known to only grazed so much right, he would have made sure to keep only so many sheep on the field so that he could keep earning profit for a long time, right? But it doesn't have to be johnny that owns the field, right? We have to see that it just has to be clearly defined. It could be some other landlord, right? Some some landlord owns the field, and johnny pays a fee to use it. Now it's in the landlord's best interest to take care of the field, right? Because he makes money based on people being able to use the field. So, if there was no grass there, he would stop making money. So he's gonna make sure to maintain the field and also keep the sheep down, right? The quantity of sheep low enough that it doesn't get depleted. So let's go ahead and see this tragedy of the commons on the graph, right? We've got the price and the quantity of sheep there and we've got our downward demand right? D. One and S. One where s one right? This only has the private cost, right? When we talked about externalities, we talked about the private cost which is just the supply curve that we're used to right? We're used to this supply curve which is kind of just the cost of raising the sheep right? Um The yeah those costs to the to the shepherd himself, right johnny's personal cost. But we see that there's this cost to society as well, right? When there's these external costs we have a negative externality and it causes us to actually have our real uh marginal social cost, right? The cost to society is actually to the left of this private cost. So what ends up happening is without considering this externality? We end up at this quantity of sheep, right? Let's focus on the quantity here, this quantity of sheep, sorry, quantity. And I'm gonna put the quantity of the market right? The market will will find this equilibrium when they don't think about this externality, right. This externality doesn't come into play and the market is going to find this equilibrium but truly the real efficient equilibrium when we consider all costs to society would have been down here. Right? So what we see is that we're overproducing right? We have too many sheep, there's too many sheep on the pasture, right? The key the market is more than our efficient quantity. We have too many sheep, and that is what's causing the common resource to be depleted, right? If we have been taken into account this cost to the field, right, we would have had less sheep on the field. Cool. So let me know what you think. Maybe I should become a screenplay writer. Maybe. I don't know. Maybe I'll just finish this course with you guys. Let's try that first. All right. Let's move on to the next video.