SL/HL IB MICROECONOMICS Summary: (market failure) Common Access Resources and Public Goods)
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Course
HL IB Economics
Institution
Loughborough University (LU)
Hi guys I'm a previous IB student that received a level 7 in the HL Economics course and 44 points overall. This doc has a summary of all of my class notes for the new 2020 Economics syllabus in the microeconomics topic of market failure required for sl and hl.
This includes:
- common access reso...
(often leads to the overuse of CARs and ‘tragedy of the commons’)
1. Rivalrous
Consumptions by one person reduces its availability for someone else
2. Non-Excludable
It is not possible to exclude people from using these resources as they are free. They have no
price so anyone can use them without paying.
E.g. common-pool resources are fisheries, forests, underwater basins, and irrigation systems, land
farming and some natural resources
Key features of Private Goods (not CARs)
1. Rivalrous
2. Excludable
It is possible to exclude people from using the good by charging a price – the scarcer the good,
the higher the price
The Tragedy of the Commons is a situation in a shared-resource system where individual users,
acting independently according to their own self-interest, behave contrary to the common good of
all users by depleting or spoiling the shared resource through their collective action.
- The lack of price for CARs means that they are basically guaranteed to be overconsumed and
will eventually run out.
- They also may be overused such that the resource is degraded and will be unavailable for
future generations – tied to the concept of sustainability
E.g.
- Fishing grounds near the village. The villagers have open access to them and will fish and take
as many fish as they want.
- It is in the interest of each individual to take as many fish as they want as each fish adds
marginal utility to the individual. Each individual will aim to maximize their total utility.
- If this fishing harms the stock of fish – the damage will be shared by the entire group including
future generations.
Consequences:
- Land degradation >> it if no longer possible to grow anything on the land anymore
- Deforestation >> local people have to travel much longer distances to acquire wood
(necessary for their livelihoods for fuel or a business)
- Overfishing >> destruction of fisheries >> local peoples cannot use lakes or rivers in their area
to get fish for sustenance
- Depletion of natural resources and threats to sustainability
- Low living standards and poverty for local people
Why are developing countries most affected by the Tragedy of the Commons?
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