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Solution Public Goods and Common Resources 1. The government is involved in providing many goods and services. For each of the goods or services listed, determine whether it is rival or nonrival in consumption and whether it is excludable or nonexcludable. What type of good is it? Without govern- ment involvement, would the quantity provided be efficient, inefficiently low, or inefficiently high? a. Street signs b. Amtrak rail service c. Regulations limiting pollution d. An interstate highway without tolls e. A lighthouse on the coast 1. a. Street signs are nonrival in consumption (if I make use of a street sign, that does not reduce your opportunity to use it) and nonexcludable (no one can prevent another person from making use of a street sign). So street signs are a public good. Because of the free-rider problem, the quantity provided privately would be inefficiently low. b. Amtrak rail service is rival in consumption (if I consume a seat, you cannot) and excludable (you cannot consume the service if you do not have a ticket). Although Amtrak rail service is a private good, it creates a positive externality in the form of reduced road and air traffic congestion. The market would provide an inefficiently low level of passenger rail service, so there is a justification for government inter- vention to support Amtrak. c. Regulations limiting pollution are nonrival in consumption (my benefit from these regulations is not diminished by your benefit) and nonexcludable (people cannot be selectively excluded from benefiting from these regulationsthat is, excluded from breathing clean air or drinking clean water). So these regulations are a public good. Because of the free-rider problem, the privately provided quanti- ty of these regulations would be inefficiently low. d. An interstate highway without tolls is rival in consumption (if I use the highway, I create a negative externality for youcongestion; that is, I reduce your benefit from the highway) but nonexcludable (drivers can use the highway without pay- ing for access). So the highway is a common resource. Because of nonexcludabili- ty, a free-rider problem exists, and the privately provided quantity of highways would be inefficiently low. e. A lighthouse is nonrival in consumption (if I use the lighthouse to steer my boat away from rocks, you can still use the same lighthouse) and nonexcludable (boats cannot selectively be made to pay for the services provided by the lighthouse). So the lighthouse is a public good. Because of the free-rider problem, the privately provided quantity would be inefficiently low. S-245 18 chapter: S245-S256_Krugman2e_PS_Ch18.qxp 9/16/08 9:23 PM Page S-245 Solution Solution 2. An economist gives the following advice to a museum director: You should intro- duce peak pricing: at times when the museum has few visitors, you should admit visitors for free. And at times when the museum has many visitors, you should charge a higher admission fee. a. When the museum is quiet, is it rival or nonrival in consumption? Is it excludableWhen the museum is quiet, is it rival or nonrival in consumption?... View Full Document

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