Advantages of International Trade

Economics #201

Professor Khana

May 24, 2007

Chapter 1, Video Question #1

Precious D Cain

Compare and contrast the characteristics of public goods and private goods. Using the example of the Tennessee Valley Authority (TVA), explain the role of government in producing public goods and its impact of the society.

The role of government in the American economic society has long been debated. There are some that feel as though the government takes too many liberties, while others feel as though the government is shirking its responsibility. Public goods are goods that the government is best positioned to utilize (i.e., police power, military). It is a good that has to be provided collectively, or not at all. When the private sector fails to take the initiative to put these plans into action, the government steps in, realizing that if they don’t, no one will. The problem that public goods create is that it is next to impossible to charge any private consumer for the benefit he is receiving. Private goods are, as the name implies, produced by the private sector. They are defined as goods that exhibit the properties of exclusion and rivalry. In other words, if it possible to prevent someone from consuming it, and consumption of the good prevents consumption by another consumer, it is most likely a private good.

In the year 1927, the great Mississippi flood left 800,000 homeless. Thousands of acres of farmland were damaged in what was called ‘the greatest peacetime calamity in the history of the country.” It was predictable, because the Mississippi had flooded before. Local authorities attempts at flood controlled were weak and uneven and therefore a failure. The building of dams could have prevented the flood (which seemed like an obvious solution) but the private sector failed to act, leading some to the conclusion that the federal funds should be used. Dams not only controlled floods, but could also generate large amounts of hydroelectric power. That presented a problem to private utilities, who believed