nity is their tax per unit multiplied by the number of units supplied. The numerical example makes this clear.8.Students readily see that the Lindahl equilibrium is efficient. The Lindahl prices are tax shares per unit of the public good equal to each person’s marginal benefit at the output for which MSB = MSC.9.The free-rider problem is intuitively obvious to students. Perhaps the best example to illustrate this is the provision of public television and radio programming. It is clear that many beneficiaries of these services choose not to contribute to financing the programming. Nonetheless, many viewers and listeners do contribute. The analysis in the chapter alerts students to the fact that the free-rider problem can be overcome. You should, however, point out to students that the free-rider problem becomes more acute in large groups. This is because each participant realizes that withholding his contribution is unlikely to have a significant effect on total output. As all reason this way, the probability of no voluntary contributions becomes all the greater. Discussion of the free-rider problem sets the stage for the analysis of compulsory taxation and the role of government in supplying pure public goods.10.The discussion of goods that fall between the extremes of pure public and pure private goods is very pragmatic. The discussion and accompanying table alert students to the fact that in the real world actual provision of goods by alternative means must be evaluated on an ad hocbasis. In class emphasize the characteristics of congestible and price-excludable public goods and point out the implications for efficiency.TRUE/FALSEQUESTIONS1.Bread is an example of a good that is nonrival in consumption. (F)2.A pure public good is one for which it is easy to exclude consumers from benefits if they refuse to pay. (F)3.The marginal social cost of producing another unit of a pure public good will always be positive. (T)4.To obtain a demand curve for a pure public good, the marginal benefit of each consumer must be summed for each possible quantity produced per time period. (T)5.If the efficient amount of a pure public good is produced, each person consumes it up to the point at which his or her marginal benefit equals the marginal social cost of the good. (F)6.In a Lindahl equilibrium, each consumer of a pure public good consumes the same quantity and pays a tax share per unit of the good equal to his or her marginal benefit. (T)7.If the marginal social cost of a pure public good exceeds its marginal social benefit, additional units of the good can still be financed by voluntary contributions. (F)
29|Part One|The Economic Basis of Government Activity8.The free-rider problem is less acute in small groups than it is in large groups. (T)9.A congestible public good is one for which the marginal cost of allowing an additional consumer to enjoy the benefits of a given quantity is always zero. (F)10.Television programming is a good example of a price-excludable public good. (T)11.It is possible to price a pure public good and sell it by the unit. (F)12.
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- Fall '07
- Public Good, pure private goods, pure public goods