Multiple Choice
Which of the following best describes how collective (public) goods differ from private goods?
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8. The Types of Goods
Public Goods: Demand Curve and Optimal Quantity
Multiple Choice
The government must provide public goods such as national defense because:
A
the demand curve for public goods is always downward sloping
B
consumers can be easily excluded from using public goods
C
public goods generate negative externalities
D
private markets fail to supply them efficiently due to non-excludability and non-rivalry
Verified step by step guidance1
Understand the characteristics of public goods: they are non-excludable (people cannot be prevented from using them) and non-rivalrous (one person's use does not reduce availability to others).
Recognize that because of non-excludability, private firms cannot easily charge consumers directly, leading to the free-rider problem where individuals benefit without paying.
Note that non-rivalry means that consumption by one individual does not diminish the amount available to others, so the marginal cost of an additional user is zero.
Realize that due to these features, private markets tend to underprovide public goods since firms cannot capture enough revenue to cover costs, resulting in market failure.
Conclude that government intervention is necessary to provide public goods efficiently, ensuring adequate supply despite the inability of private markets to do so.
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