216 Chapter 11/Public Goods and Common Resources This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. Public goods are goods that are neither excludable nor rival in consumption. Examples include national defense, knowledge, and uncongested nontoll roads. Common resources are goods that are rival in consumption but not excludable. Examples include fish in the ocean, the environment, and congested nontoll roads. 2. The free-rider problem occurs when people receive the benefits of a good but avoid paying for it. The free-rider problem induces the government to provide public goods because the private market will not produce an efficient quantity on its own. The government uses tax revenue to provide the good, everyone pays for it, and everyone enjoys its benefits. The government should decide whether to provide a public good by comparing the good’s costs to its benefits. If the benefits exceed the costs, society is better off. 3. Governments try to limit the use of common resources because one person’s use of the resource diminishes others’ use of it. This means that there is a negative externality and people tend to use common resources excessively. Questions for Review 1. A common resource is a good that is rival in consumption but not excludable. An example is fish in the ocean. If someone catches a fish, that leaves fewer fish for everyone else, so it is rival in consumption. But the ocean is so vast, you cannot charge people for the right to fish, or prevent them from fishing, so it is not excludable. Thus, without government intervention, people will use the good too much, because they don't account for the costs they impose on others when they use the good. 2. Cost–benefit analysis is a study that compares the costs and benefits to society of providing a public good. It is important because the government needs to know which public goods people value most highly and which have benefits that exceed the costs of supplying them. It is hard to do because quantifying the benefits is difficult to do from a questionnaire and because respondents have little incentive to tell the truth. 3. A public good is a good that is neither excludable nor rival in consumption. An example is national defense, which protects the entire nation. No one can be prevented from enjoying the benefits of it, so it is not excludable, and an additional person who benefits from it does not diminish the value of it to others, so it is not rival in consumption. The private market will not supply the good, because no one would pay for it because they cannot be excluded from enjoying it if they don't pay for it.
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- Summer '14
- Public Good, Market failure, Externality