Why do markets tend to underproduce public goods?
What will be an ideal response?
Markets, left to themselves, tend to underproduce public goods because it is difficult or impossible to exclude persons from the good or service. If it were possible to exclude, then a price could be charged which might cover the cost of the good or service. Without a profit motive to acquire the good, markets do not do so.
You might also like to view...
Kate and Ali can live together in a two-bedroom apartment for $600 per month, or they can each rent a one-bedroom apartment for $400 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's taste in music. Kate would be willing to pay up to $100 a month to avoid hearing Ali's music. Ali would give up listening to her music for no less than $300 per month. If Kate and Ali decide to live together, is it socially optimal for Ali to play her music in the apartment?
A. Yes, because the benefit to Ali of listening to her music is greater than the cost to Kate. B. Yes, because the benefit to Ali of listening to her music is less than the cost to Kate. C. No, because the benefit to Ali of listening to her music is less than the cost to Kate. D. No, because the benefit to Ali of listening to her music is greater than the cost to Kate.
Charles Murray believed that the antipoverty programs of the 1960s and 1970s
A. drastically reduced the level of poverty. B. slightly reduced the level of poverty. C. had no impact on the level of poverty. D. caused more poverty.
Product markets are defined as ______.
a. places where households can buy necessities using government rebates b. markets where products are bought by firms and sold by households c. markets where products are bought by households and sold by firms d. places where households can sell their labor and services
Based on the figure below. Starting from long-run equilibrium at point C, a tax increase that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at point ________ and eventually to a long-run equilibrium at point ________, if left to self-correcting tendencies.
A. D; C B. D; B C. A; B D. B; C