Explain intuitively why the market for a nonexcludable good fails to provide an efficient quantity.
What will be an ideal response?
It takes resources to produce a good, irrespective of its excludability in consumption. If a good is not excludable, then producers of the good face the free-rider problem. If people have extremely strong incentives to free ride, nonexcludable goods will not be provided by private sectors.
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A consumer spends his income on food and rent. The government places a $1 tax on food. To restore the pre-tax consumption level of food the rebate paid to consumers will be smallest when
A) the own price elasticity of demand for food is 2, and the income elasticity of demand for food is 5. B) the own price elasticity of demand for food is 5, and the income elasticity of demand for food is 5. C) the own price elasticity of demand for food is 2, and the income elasticity of demand for food is 10. D) the own price elasticity of demand for food is 5, and the income elasticity of demand for food is 10.
A "devaluation" occurs when
A) the official price of a currency is raised. B) the official price of a currency is lowered. C) a nation's currency depreciates under a flexible exchange rate system. D) a nation's currency appreciates under a flexible exchange rate system. E) none of the above
Output that provides benefits without the production of a tangible product
What will be an ideal response?
Many economists think that, in the long run, the economy tends to move toward
A. the natural or full-employment rate of unemployment. B. the natural or full-employment rate of inflation. C. a severe slump with high unemployment. D. an accelerating rate of inflation.