Explain why public goods can be classified as market failure? Explain what problem arises when public goods are produced?
What will be an ideal response?
When the market fails to provide certain goods and services, there is a clear case for government intervention. If left to the free market mechanism, no public goods would be provided and, as a result, there would be a clear market failure. Public goods can be used by one person without reducing availability of the good for consumption by others (non-rival) at no additional cost and once the good is produced, it is usually impossible, or at the very least difficult, to exclude anyone from consuming it (non-excludable). Due to these results, consumers can take advantage of public goods without contributing sufficiently to their creation. This is called the free rider problem.
You might also like to view...
Refer to the figure above. Everything else remaining unchanged, at what rate will the wage be held if there is downward wage rigidity in the market, when the demand curve shifts to LD2?
A) $50 B) $30 C) $40 D) $20
List and discuss the importance of the major effects of the deregulation that occurred in the 1980s
Which of the following was not a reason OPEC failed to keep the price of oil high?
a. Over the long run, producers of oil outside of OPEC responded to higher prices by increasing oil exploration and by building new extraction capacity. b. Consumers responded to higher prices with greater conservation. c. Consumers replaced old inefficient cars with newer efficient ones. d. The agreement OPEC members signed allowed each country to produce as much oil as each wanted.
Equilibrium and disequilibrium
A) are real world states. B) are mental constructs used by economists. C) foreshadow what is about to happen in a market. D) a and b E) a, b and c