All Flashcards
How does the free-rider problem affect the provision of national defense?
Individuals benefit from national defense whether they pay for it or not, leading to under-provision by the private sector.
How does non-excludability apply to a public park?
Anyone can enter and use the park, regardless of whether they pay taxes that support it.
How does non-rivalry apply to street lighting?
One person using the light doesn't reduce its benefit for others.
How does the tragedy of the commons apply to fishing in the open sea?
Anyone can fish, but one person catching a fish means one less for others, leading to overfishing.
How does excludability apply to cable television?
You can be excluded from watching if you don't pay for a subscription.
Why are public goods often funded through taxation?
Taxation provides a compulsory means of funding public goods, overcoming the free-rider problem.
How does the concept of MSB=MSC relate to the optimal number of parks in a city?
The city should build parks until the additional benefit of another park equals the additional cost.
How does the free-rider problem lead to market failure?
It reduces the incentive for private firms to produce public goods, leading to under-allocation of resources.
How does the characteristic of rivalry explain the 'Tragedy of the Commons'?
Rivalry means that one person's use diminishes availability for others, leading to overuse and depletion.
How does the concept of non-excludability affect the profitability of providing public goods?
Non-excludability makes it difficult to charge for the good, reducing profitability and private sector provision.
Define Public Goods.
Goods provided by the government because the free market fails to produce them efficiently.
Define Market Failure.
When the free market doesn't allocate resources efficiently.
Define the Free-Rider Problem.
People consume more than their fair share of a public good or pay less than their fair share of its cost.
Define Non-Excludability.
You can't prevent anyone from using the good, even if they don't pay.
Define Non-Rivalry.
One person's use of the good doesn't reduce its availability for others.
Define Commons Goods.
Non-excludable but rival.
Define Low-Congestion Goods (Club Goods).
Excludable but non-rival.
Define Marginal Social Benefit (MSB).
The additional benefit to society from one more unit of the public good.
Define Marginal Social Cost (MSC).
The additional cost to society from one more unit of the public good.
Define Tragedy of the Commons.
Overconsumption due to self-interest, leading to depletion of the resource.
What is the impact of government subsidies on the provision of club goods?
Subsidies can lower the cost and increase the utilization of club goods.
How can regulations help to mitigate the tragedy of the commons?
Regulations can restrict access or set quotas to prevent overexploitation of resources.
What is the effect of taxation on the provision of public goods?
Taxation provides the necessary funding for the government to supply public goods.
How do property rights affect the tragedy of the commons?
Clearly defined property rights can incentivize responsible resource management, preventing overuse.
How can privatization of a common resource affect its use?
Privatization can lead to more efficient use but may also restrict access.
What is the effect of congestion pricing on low-congestion goods?
Congestion pricing can reduce overuse and maintain the non-rival nature of the good.
How can government intervention address market failure in the case of public goods?
The government can provide the good directly or subsidize its production to ensure adequate supply.
What are the potential drawbacks of government provision of public goods?
Potential drawbacks include inefficiency, over-provision, and political influence.
How does international cooperation help in managing global commons?
International agreements can establish rules and regulations for the use of shared resources like oceans and the atmosphere.
What is the role of cost-benefit analysis in determining the optimal quantity of a public good?
Cost-benefit analysis helps to identify the point where MSB equals MSC, guiding the decision on how much to provide.