Public Goods and Common Resources Flashcards
(15 cards)
What are some examples of goods that we consume without paying?
Nature, national defense, clean air, and water.
What happens when goods are free in terms of market forces?
The market forces that normally allocate resources are absent.
Why can’t private markets ensure proper production and consumption for goods without a price?
Because there is no price attached, making it difficult to allocate resources efficiently.
How can government policy help in cases where goods are free?
It can potentially remedy market failure and raise economic well-being.
What does excludability refer to?
The property of a good whereby a person can be prevented from using it.
What does rivalry mean in the context of goods?
It refers to the property whereby one person’s use diminishes other people’s use of the same good.
How are public goods characterized in terms of excludability and rivalry?
Public goods are neither excludable nor rival.
Why are public goods difficult for private markets to provide?
Due to the free-rider problem, where individuals benefit without paying for them.
What is a free rider?
A person who receives the benefit of a good but avoids paying for it.
What should happen if the benefit of a public good exceeds its cost?
The government should provide the good and fund it through taxes on those who benefit.
Why is measuring the benefit of public goods often difficult?
Because it can be challenging to quantify how much individuals value these non-excludable benefits.
What are some important examples of public goods?
National defense, knowledge from basic research, and efforts to fight poverty.
How do common resources differ from public goods in terms of excludability and rivalry?
Common resources are rival but not excludable.
What is “the tragedy of the commons”?
A situation where common resources get used more than socially desirable due to individual incentives outweighing social incentives.
Can you give an example illustrating the tragedy of the commons?
In a medieval town with common land for grazing sheep, overgrazing occurs as population grows because individuals prioritize their own benefits over communal care.
