Week 3: Public Goods Flashcards
(21 cards)
Q: What are the two defining characteristics of a public good?
A: Non-excludability and non-rivalry.
Q: What does non-excludability mean?
A: It is prohibitively costly to prevent someone from using the good.
Q: What does non-rivalry mean?
A: One person’s use does not reduce availability for others; marginal cost of use is near zero.
Q: What is the ‘free rider’ problem?
A: When individuals benefit from a good without paying for it, leading to undersupply and underconsumption.
Q: What rule defines the efficient provision of public goods?
A: The Samuelson Rule: Sum of Marginal Rates of Substitution = Marginal Rate of Transformation.
Q: How are public goods typically funded?
A: Through taxes, reducing private consumption indirectly.
Q: Why might public goods be underprovided in markets?
A: Because individuals have no incentive to pay voluntarily due to non-excludability.
Q: What is the difference between public and publicly provided goods?
A: Public goods are non-rival and non-excludable, while publicly provided goods may be excludable or rival.
Q: Give an example of a common pool resource.
A: Clean air, river water, fish in the ocean.
Q: What happens when a publicly provided good is overconsumed?
A: There may be congestion or resource depletion, requiring queuing or user fees.
Q: How does Neoclassical Economics justify state intervention?
A: Only to correct market failures, such as public goods and externalities.
Q: What is Keynes’s view on government roles?
A: Governments should do what the private sector is not doing, not duplicate efforts.
Q: What are global public goods?
A: Goods that benefit all countries and individuals, like international stability or clean air.
Q: Why is providing global public goods challenging?
A: No global government, anarchy, and uncertainty in world politics.
Q: What are international regimes?
A: Sets of rules and norms around which actors’ expectations converge to support cooperation.
Q: What is the supply-side argument for regimes?
A: A hegemon provides leadership and stability, enabling regime creation (e.g., Kindleberger’s theory).
Q: What is the demand-side argument for regimes?
A: Regimes are desired when cooperation provides benefits unattainable individually, addressing market failure.
Q: According to the Coase Theorem, when is bargaining efficient?
A: When there is legal liability, perfect information, and zero transaction costs.
Q: What leads to the creation of regimes despite Coasean conditions not holding?
A: Positive transaction costs, imperfect information, and lack of liability frameworks.
Q: What is the principle of non-discrimination in GATT?
A: Most Favored Nation (Art. 1) and National Treatment (Art. 3) ensure equal treatment of foreign and domestic goods.
Q: What is the principle of reciprocity in GATT?
A: Negotiations should be mutually advantageous and aimed at substantial tariff reductions.
