Chapter 5.2 (public goods)

Which of the following is true? A. All of the other answers are true. B. The government may be able to overcome the free rider problem with public goods by providing the public goods and imposing taxes to pay for them. C. National defense and flood control are illustrations of public goods. D. The nature of public goods is such that the government cannot accurately assess the benefits and costs of those affected. E. Just as in the case of external benefits, public goods tend to be underprovided by the private sector.

A. All of the other answers are true. Statement A is true: The government may be able to overcome the free rider problem with public goods by providing the public goods and imposing taxes to pay for them. Statement B is true: The nature of public goods is such that the government cannot accurately assess the benefits and costs of those affected. Often, it has to make educated guesses regarding the negative and positive effects of producing a public good. Statement C is true: National defense and flood controls are examples of public goods, since they meet the conditions of being non-excludable and non-rival. Other examples are mosquito eradication, weather prediction, Statement D is true: Just as in the case of external benefits, public goods tend to be under-provided by the private sector.

Which of the following is true? A. From an efficiency standpoint, a market economy will generally supply too much of a public good. B. It is extremely difficult to limit the benefits of a public good to the people who pay for it. C. Consumption of a public good by one individual reduces the availability of the good for others. D. None of the other answers are correct. E. Public goods are free whenever the government produces them.

B. It is extremely difficult to limit the benefits of a public good to the people who pay for it.

As an additional consumer obtains the benefits of a public good such as national defense, the benefits to existing consumers: A. decline. B. do not change. C. increase. D. increase in the short run, but decrease in the long run.

B. do not change. As an additional consumer obtains the benefits of a public good such as national defense, the benefits to existing consumers do not change. By definition, a public good is neither rival nor excludable. The condition of non-rivalry implies that everyone can consume the public good simultaneously, that is, one person's consumption does not diminish the amount available to others. Besides national defense, other examples of public goods which satisfy the characteristics of non-rival and non-excludable are public sanitation, scientific research and broadcast television. For any one of those examples, an additional consumer does not impact the amount of the good available to other consumers.

The free rider problem suggests that competitive markets will tend to: A. produce more than the optimal quantity of a public good. B. produce less than the optimal quantity of a public good. C. produce about the optimal quantity of a public good. D. do none of the above.

B. produce less than the optimal quantity of a public good. The free rider problem suggests that competitive markets will tend to produce much less than the optimal quantity of a public good. The essence of the free rider problem resides in the fact that people would tend to pay less or no pay at all for the public goods. So, the public good will most likely be under produced or no produced at all because the pricing system does not operate as it should. The "free riders" are those who consume more than their fair share of a public resource, or pay less or nothing of the costs of its production.

In a competitive economy with no government sector: A. goods with spillover costs will be underproduced. B. there will be too few public goods produced. C. goods with spillover benefits will not be produced at all. D. too few resources will be allocated to each industry.

B. there will be too few public goods produced. In a competitive economy with no government sector, there will be too few public goods produced. The fact that public goods are non-excludable and non-rival makes it very difficult to provide these goods privately. In In addition, the benefit each person gets is difficult to measure, and there is the problem of the free rider, a consumer who wants to obtain benefits from something she or he has not paid for.

Public goods are those that are consumed: A. only by the government that provides them. B. only by those who have paid for them. C. by the paying and nonpaying public alike. D. by the private group that funds them. E. only by free riders.

C. by the paying and nonpaying public alike. Public goods are those that are consumed by the paying and nonpaying public alike. The defining characteristics of a public good are non-excludability and non-rivalry. The former implies that once the good has been produced, non-payers cannot be excluded from consuming the good; the latter denotes that consumption of the public good by one additional person does not reduce anyone else's consumption of it.

Which of the following is an example of a public good? A. telephone service B. a city-owned bus C. electricity generated by a city-owned public utility D. clean air

D. clean air A public good is one that is non rival in consumption (can be consumed by everyone at the same time) and nonexcludable (no one can be easily excluded from consuming the good). Clean air meets both conditions, so it is a public good.

The determination of which goods are public goods depends on: A. public laws. B. normative considerations. C. whether it is produced directly by the government or produced by a private sector firm. D. whether it is possible to exclude additional users from consuming the good if they do not pay for it. E. c. and d.

D. whether it is possible to exclude additional users from consuming the good if they do not pay for it. The determination of which goods are public goods does partially depend on whether it is possible to exclude additional users from consuming the good if they do not pay for it

Public goods are characterized by: A. rivalry in consumption. B. non rivalry in consumption. C. excludability of non payers. D. nonexcludability of non payers.

E. both b. and d. Two conditions are required: non-excludability and non-rivalry The defining characteristics of a public good are non-excludability and non-rivalry. The former implies that once the good has been produced, non-payers cannot be excluded from consuming the good; the latter denotes that consumption of the public good by one additional person does not reduce anyone else's consumption of it.

Without government intervention, society is likely to get too little production of: A. private goods. B. private goods that generate external costs. C. private goods that generate external benefits. D. public goods. E. both private goods that generate external benefits and public goods.

E. both private goods that generate external benefits and public goods. Without government intervention, society is likely to get underproduction of both private goods that generate external benefits and public goods. The underproduction of private goods with positive externalities happens because the price of the good does not reflect the extra value of producing the good. If all benefits were taken into consideration, the prices of these goods would be lower and the quantity demanded would be greater. The fact that public goods are non-excludable and non-rival makes it very difficult to provide these goods privately. In In addition, the benefit each person gets is difficult to measure, and there is the problem of the free rider, a consumer who wants to obtain benefits from something she or he has not paid for.