Changes

But look more closely.  The next time you’re traveling in a car, take a look at the exhaust pipe on the car in front of you.  Pollution comes out of it.  That harms other people who did not sell or buy the gas.  People who do not drive, or children, are slightly affected by that pollution.  In some poor neighborhoods, it’s customary (and illegal) for car owners to modify their cars so that their engines have higher miles-per-gallon, but produce more pollution.  You can smell the difference when you are stuck behind one of those cars.  Airport taxicabs are notorious for putting out more pollution than the average car.  Airplanes themselves put out substantial pollution at airports as they idle.  In New Jersey, there is now a law against idling one's engine for longer than a few minutes.  At truck stops, truckers are encouraged not to idle their engines for long periods of time, but many do anyway.

But look more closely.  The next time you’re traveling in a car, take a look at the exhaust pipe on the car in front of you.  Pollution comes out of it.  That harms other people who did not sell or buy the gas.  People who do not drive, or children, are slightly affected by that pollution.  In some poor neighborhoods, it’s customary (and illegal) for car owners to modify their cars so that their engines have higher miles-per-gallon, but produce more pollution.  You can smell the difference when you are stuck behind one of those cars.  Airport taxicabs are notorious for putting out more pollution than the average car.  Airplanes themselves put out substantial pollution at airports as they idle.  In New Jersey, there is now a law against idling one's engine for longer than a few minutes.  At truck stops, truckers are encouraged not to idle their engines for long periods of time, but many do anyway.

So the buyers and sellers of gas do not pay the full cost.  The public is bearing the small cost of the pollution.  This is an called a “negative externality” because it imposes costs on people who did not buy the good.  A negative externality has a negative effect on others.

So the buyers and sellers of gas do not pay the full cost.  The public is bearing the small cost of the pollution.  This is called a “negative externality” because it imposes costs on people who did not buy the good.  A negative externality has a negative effect on others.

Car pollution is often unnoticeable.  But sometimes pollution can be severe and dangerous.  If a company can dump toxic waste into a river for free, then that is going to be cheaper for it than disposing of the waste in proper manner.  The company will make more profits by dumping its waste at less cost to it.  But those who like to swim or fish in the river will suffer the harm.  Either they will have to curtail their activity, interfering with their utility, or they could become sick from it.  Environmental harm is the most obvious type of "negative externality."  Another example of a negative externality is excessive noise at heavy metal rock concerts, which may disturb neighbors who never bought or sold a ticket.

Car pollution is often unnoticeable.  But sometimes pollution can be severe and dangerous.  If a company can dump toxic waste into a river for free, then that is going to be cheaper for it than disposing of the waste in proper manner.  The company will make more profits by dumping its waste at less cost to it.  But those who like to swim or fish in the river will suffer the harm.  Either they will have to curtail their activity, interfering with their utility, or they could become sick from it.  Environmental harm is the most obvious type of "negative externality."  Another example of a negative externality is excessive noise at heavy metal rock concerts, which may disturb neighbors who never bought or sold a ticket.

== Public good ==

== Public good ==

A “public good” is something, like music in public, that provides a benefit to one person without reducing the benefit to others.  (Let's assume it's ''good'' music!)  One listener does not lose benefit by the presence of other listeners.  Unless earphones are used, it is impossible to exclude others nearby from freely hearing it.  Food, in contrast, is not a public good, because one person can eat an entire meal without allowing others to eat it also!

A “public good” is something, like music in public, which provides a benefit to one person without reducing the benefit to others.  (Let's assume it's ''good'' music!)  One listener does not lose benefit by the presence of other listeners.  Unless earphones are used, it is impossible to exclude others nearby from freely hearing it.  Food, in contrast, is not a public good, because one person can eat an entire meal without allowing others to eat it also!

Let's try to define a "public good" in a more rigorous manner.  '''''A "public good" is a good which has indivisible benefits such that others cannot be excluded from the benefit even though they do not pay for it.'''''  Here are some examples:

Let's try to define a "public good" in a more rigorous manner.  '''''A "public good" is a good which has indivisible benefits such that others cannot be excluded from the benefit even though they do not pay for it.'''''  Here are some examples:

===Honors Example===

===Honors Example===

Consider an example of a government regulator telling a monopoly at which price to sell his goods.  This rarely happens, but public utilities (gas and electric companies) are an example where any rate increases must be first reviewed and approved by government before they can go into effect.

Consider an example of a government regulator telling a monopoly at which price to sell his goods.  This rarely happens, but public utilities (gas and electric companies) are an example where any rate increases must first be reviewed and approved by government before they can go into effect.

Monopolies sell where marginal revenue equals marginal cost, or MR=MC.  But that is at a higher price than if there were perfect competition.  In perfect competition, the goods sell where P=MC, or where the marginal price curve intersects the demand curve.  That is at higher quantity of output than where the marginal cost curve intersects the marginal revenue curve.  Always remember:  the best price point for the public is the price when there is perfect competition, and there is more output at that equilibrium price in the free market.  More output means more benefits to the public, and more consumer surplus.

Monopolies sell where marginal revenue equals marginal cost, or MR=MC.  But that is at a higher price than if there were perfect competition.  In perfect competition, the goods sell where P=MC, or where the marginal price curve intersects the demand curve.  That is at higher quantity of output than where the marginal cost curve intersects the marginal revenue curve.  Always remember:  the best price point for the public is the price when there is perfect competition, and there is more output at that equilibrium price in the free market.  More output means more benefits to the public, and more consumer surplus.

Yet the difficulties in surviving are what make a tree strong.  Each day it grows in two directions: downward further into the soil towards more nutrients, and upwards into the sky towards more sunlight.  Its growth is not easy in either direction.  The more it has to reach for nourishment, the bigger and stronger it becomes.  Trees that are given their nutrients, as in a laboratory, do not grow as large and powerful as trees that must struggle to survive in the wild.

Yet the difficulties in surviving are what make a tree strong.  Each day it grows in two directions: downward further into the soil towards more nutrients, and upwards into the sky towards more sunlight.  Its growth is not easy in either direction.  The more it has to reach for nourishment, the bigger and stronger it becomes.  Trees that are given their nutrients, as in a laboratory, do not grow as large and powerful as trees that must struggle to survive in the wild.

It is in striving against obstacles that the tree becomes so powerful.  Economics predicts that those who suffer from adversity will often become more successful or productive than those who have it easy, just as is true for trees.  The adversity is what makes one stronger, more motivated and more efficient.  Many of the most successful businessmen in history had very difficult childhoods, and some (like Tom Monahan, founder of Dominos Pizza) even grew up in orphanages.  Poverty was the common background of most successful businessmen.  In contrast, people who have had it easy rarely invent or succeed with their own businesses.

It is in striving against obstacles that the tree becomes so powerful.  Economics predicts that those who suffer from adversity will often become more successful or productive than those who have it easy, just as is true for trees.  The adversity is what makes one stronger, more motivated and more efficient.  Many of the most successful businessmen in history had very difficult childhoods, and some (like Tom Monahan, founder of Domino's Pizza) even grew up in orphanages.  Poverty was the common background of most successful businessmen.  In contrast, people who have had it easy rarely invent or succeed with their own businesses.

The Bible contains a similar message: it is through suffering and difficulties that Christianity became so strong.  Many books in the Bible emphasize this, from Daniel to Mark.  Learn to use adversity like an exercise bicycle or weights in order to make you stronger and more successful economically.

The Bible contains a similar message: it is through suffering and difficulties that Christianity became so strong.  Many books in the Bible emphasize this, from Daniel to Mark.  Learn to use adversity like an exercise bicycle or weights in order to make you stronger and more successful economically.

Next let's review “returns to scale.”  Imagine using a scale of one foot in measuring the dimensions of a room.  Then change to a scale of inches.  All dimensions increase by a factor of 12, because there are 12 inches to a foot.  That is what “scale” means: it affects everything.  In economics, changing the scale means changing all inputs by the same proportion.  Increasing the scale means increasing all inputs.  The “returns to scale” are then what happens to the output of a company when all inputs are increased.  Is "bigger" more efficient for the business?

Next let's review “returns to scale.”  Imagine using a scale of one foot in measuring the dimensions of a room.  Then change to a scale of inches.  All dimensions increase by a factor of 12, because there are 12 inches to a foot.  That is what “scale” means: it affects everything.  In economics, changing the scale means changing all inputs by the same proportion.  Increasing the scale means increasing all inputs.  The “returns to scale” are then what happens to the output of a company when all inputs are increased.  Is "bigger" more efficient for the business?

The phrase that something is "scalable" means its proportions increase in a similar way in all respects, like "similar triangles" in geometry.  Some things are "scalable", while others are not.  A software database program that works the same for 100 entries as it does for 1 million entries is "scalable"; a program that needs to be reworked and reprogrammed as the database grows larger is not scalable.  One of the fabulous features of "wiki" software used by Conservapedia is that it is scalable: almost no adjustments were needed as the number of its entries increase from 1 to 1000 to over 30,000 now, or even to a million entries in the future.

The phrase that something is "scalable" means its proportions increase in a similar way in all respects, like "similar triangles" in geometry.  Some things are "scalable", while others are not.  A software database program that works the same for 100 entries as it does for 1 million entries is "scalable"; a program that needs to be reworked and reprogrammed as the database grows larger is not scalable.  One of the fabulous features of "wiki" software used by ''Conservapedia'' is that it is scalable: almost no adjustments were needed as the number of its entries increase from 1 to 1000 to over 30,000 now, or even to a million entries in the future.

“Increasing returns to scale” means that when you increase all the inputs, then your company’s output increases by an even greater proportion.  For example, if you double your inputs then perhaps your output triples.  That would be extremely profitable for your business.  Your costs only double, but your revenue triples.  Your profits skyrocket.  It is a formula for success.

“Increasing returns to scale” means that when you increase all the inputs, then your company’s output increases by an even greater proportion.  For example, if you double your inputs then perhaps your output triples.  That would be extremely profitable for your business.  Your costs only double, but your revenue triples.  Your profits skyrocket.  It is a formula for success.