Asked by Martin hubs-boy on Apr 27, 2024
Verified
Public goods represent a market failure because
A) they are provided by firms with market power.
B) positive externalities are created through their production.
C) by their very nature they are nonexcludable and nonrival, which makes it difficult for the private sector to supply them profitably.
D) there is incomplete information regarding their quality.
Public Goods
Goods which are both non-excludable and non-rivalrous, meaning they can be used simultaneously by more than one person and individuals cannot be effectively excluded from using them.
Market Failure
A situation in which the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss.
Nonexcludable
A characteristic of a good or service that prevents individuals who have not paid for it from being easily excluded from its use or benefit.
- Understand the concepts of public goods, private goods, and their characteristics.
- Identify and explain market failures related to public goods, including the free-rider problem.
Verified Answer
AA
Alparslan Akp?narMay 01, 2024
Final Answer :
C
Explanation :
Public goods are characterized by nonexcludability and nonrivalry, meaning that no one can be effectively excluded from using them and one person's use does not diminish another's. These characteristics lead to the free-rider problem, where individuals have an incentive to consume the good without paying for it, making it unprofitable for private firms to supply these goods. This results in a market failure where the market does not efficiently allocate resources to produce public goods.
Learning Objectives
- Understand the concepts of public goods, private goods, and their characteristics.
- Identify and explain market failures related to public goods, including the free-rider problem.