chapter 6

Question 1

WHO credited with formalizing the theory of public goods in modern economics.

Answer 1

Paul Samuelson

Question 2

Paul Samuelson seminal paper,
“WHAT,” was published in 1954. I

Answer 2

The Pure Theory of Public Expenditure

Question 3

This rule states that the Pareto efficient provision of a public good occurs when the marginal rate of
transformation between the public good and each private good is equated to the sum of the marginal rates of
substitution of all households.

Answer 3

Samuelson
rule.

Question 4

Samuelson Defined public good as “WHAT”. These are: “goods which all enjoy in common in
the sense that each individual’s consumption of such a good lead to no subtractions from any other individual’s
consumption of that good.”

Answer 4

collective consumption good

Question 5

Samuelson’s contributions extended beyond the theory of public goods. He is also known for popularizing the WHAT

Answer 5

growth-oriented definition of economics

Question 6

emphasizes the importance of economic growth and
development.

Answer 6

growth-oriented definition of economics

Question 7

His work made an important contribution on economic theory and policy, and he remains one
of the most influential economists of the 20th century.

Answer 7

PAUL SAMUELSON

Question 8

where individuals can benefit from the good without
paying for it, leading to under-provision of the good by the private sector.

Answer 8

free-rider problem

Question 9

Examples of public goods include:

Answer 9

• National Defense. Protects all citizens and cannot be provided selectively.
• Public Safety. Such as police and fire services, which benefit the entire community.
• Public Parks. Available for everyone to enjoy without diminishing the enjoyment of others.
• Street Lighting. Provides light to all passersby without reducing its availability to any individual.

Question 10

act as signals that guide the decisions of buyers and sellers.

Answer 10

prices

Question 11

There are two basic forms of market failure associated with public goods:

Answer 11

underconsumption and undersupply.

Question 12

cause market failure because they are non-excludable and non-rivalrous.

Answer 12

Public goods

Question 13

When goods are free, people do not have the WHAT. The private market has no incentive to
provide such goods, hence market WHAT. Thus, if market forces are absent, or market failure exists,
WHAT must step in.

Answer 13

incentive to produce

failure

government

Question 14

Should the Government Provide Public Goods?

Answer 14

1. The non-rival nature of consumption provides a strong case for the government to provide and pay
   for public goods.
2. Many public goods are provided free at the point of use and then funded by taxation or non-tax
   revenues.
3. State provision may help to prevent under-provision and under-consumption of public goods so that
   social welfare is improved.
4. If the government provides public goods they may be able to do so more efficiently because of
   economies of scale.
5. Providing essential public goods helps affordability and access to important services for lower income
   households and therefore help to address inequalities of income.
6. If the government becomes a monopoly provider, there is a danger of a lack of efficiency arising from
   a lack of competition.
7. In some cases the state will fund and the private sector provides public goods e.g. Public Private
   Partnerships

Question 15

Economic Properties of Public Goods

Answer 15

RIVAL CONSUMPTION
NON-RIVAL CONSUMPTION
PROPERTY OF EXCLUSION
NON-EXCLUSION

Question 16

means that if a good is used by one person, it
cannot be used by another. For instance, if Lynn drinks a bottle of apple juice, Fran cannot drink that same
bottle of apple juice.

Answer 16

RIVAL CONSUMPTION

Question 17

refers to cases in which one person’s consumption
does not detract from or prevent another person’s consumption. It is a consumption that can be enjoyed by
multiple people simultaneously without diminishing its value for other.

Answer 17

non-rival consumption

Question 18

The marginal cost of supplying a public good to an extra person is WHAT.

Answer 18

zero

Question 19

means that no individual can be excluded from using the good, even if they do not pay for it. Benefits derived
from public goods cannot be confined solely to those who have paid for it.

Answer 19

Non-exclusion

Question 20

WHAT have the properties of rival consumption and excludability;

WHAT are
characterized by non-rival consumption and non-excludability.

Answer 20

private goods
public goods

Question 21

Goods for which there is no rivalry in
consumption and for which exclusion is impossible are WHAT

Answer 21

pure public goods.

Question 22

In the context of public economics, goods can be categorized into four:

Answer 22

private, public, common resources
and club goods.

Question 23

▪ Excludable and rivalrous
▪ Food, clothes, cars, and other consumer goods. If you buy a loaf of bread, you can prevent
others from eating it, and when you eat some, there’s less left for others.

Answer 23

Private Goods

Question 24

▪ Non-Excludable and Rivalrous:
▪ Fish in the sea, timber, coal. These resources are typically owned by no one and are
accessible to all, but overuse can deplete them.

Answer 24

Common Goods

Question 25

▪ Excludable and Non-Rivalrous ▪ Cinemas, private parks, satellite TV. These are goods or services that can be provided to a limited number of people who pay for access, but once the capacity is reached, they become rivalrous.

Answer 25

Club Goods:

Question 26

▪ Non-Excludable and Non-Rivalrous ▪ Air quality, national defense. These goods benefit everyone within a society, and one person's enjoyment of them does not diminish the benefits for others.

Answer 26

Public Goods.

Question 27

The reluctance of individuals contribute voluntarily to the support of public goods is referred to as the WHAT

Answer 27

free rider problem.

Question 28

T OR F The free-rider problem arises because of the non-excludable and non-rivalrous nature of public goods.

Question 29

The WHAT occurs when people benefit without paying, causing others to avoid paying too, leading to an insufficient supply of goods.

Answer 29

free-rider problem

Question 30

If everyone behaves as a free rider, the public good may be underprovided or not provided at all because the funds necessary for its provision are not available.

Answer 30

Under-Provision.

Question 31

The lack of direct benefit from paying (since the good is non-rivalrous) and the inability to exclude non-payers (non-excludable) reduces the incentive for individuals to contribute financially.

Answer 31

Incentive to Pay.

Question 32

Government can use coercive power to force people to pay for public goods, through WHAT.

Answer 32

taxation.

Question 33

To address the free rider problem, the following are some solutions:

Answer 33

1. Government Provision. One solution is for the government to step in and provide public goods. The government can finance these goods through taxation, which spreads the cost across the population. This approach ensures that everyone contributes to the provision of public goods, whether they choose to or not. 2. Voluntary Contributions. In some cases, voluntary contributions can work, especially if there's a strong sense of community or if the public good provides a significant benefit to a small, identifiable group. However, this approach is less reliable and may not be sufficient for larger-scale public goods. 3. Subsidies and Incentives. The government can also use subsidies or other incentives to encourage private provision of public goods or to increase voluntary contributions. 4. Regulation. In cases where public goods are provided by the private sector, regulation can ensure that the goods are provided at an adequate level and that costs are distributed fairly. 5. Community-Based Provision. In some instances, communities may organize to provide public goods themselves, relying on local resources and voluntary contributions.

Question 34

like public goods, are not excludable. They are available free of charge to anyone who wishes to use them. are rival goods because one person’s use of the common resource reduces other people’s use. Some examples include clean air and water, fish stocks, timber, whales and other wildlife, etc.

Answer 34

* Common resources

Question 35

is a parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole. * Common resources tend to be used excessively when individuals are not charged for their usage . * One example is a stock of a common grazing land. Other examples include coffee consumption, overfishing, and traffic congestion.

Answer 35

The Tragedy of the Commons

Question 36

* The market fails to allocate resources efficiently with the legal authority to control it). when property rights are not well established (i.e. some item of value does not have an owner * When the absence of property rights causes a market failure, the government can potentially solve the problem.

Answer 36

The Importance of Property Rights

Question 37

WHAT has negative effects (externalities) on people and their communities leading to a significant loss of social welfare.

Answer 37

public bad

Question 38

Examples of public bads include:

Answer 38

1. Spread of infectious diseases such as Ebola 2. Unauthorized / illegal surveillance by the state 3. Modern slavery / human trafficking 4. Environmental threats to the global commons 5. Gender and other forms of discrimination in labor markets 6. Disposal of household and commercial waste 7. Web viruses / denial of service attacks 8. High rates of global inequalities of income and wealth 9. Endemic corruption within organisations and societies 10. Externalities from banking crises / financial mismanagement