4.1.8 The market mechanism, market failure and govt. intervention in markets

Question 1

What is a public good?

Answer 1

a good that is both non-rivalrous and non-excludable

Question 2

What is meant by a public good (explained)?

Answer 2

• non-excludable - no one can be excluded from consuming it
• non-rivalrous - one person’s consumption does not diminish the quality or quantity of another’s consumption

Question 3

What is meant by non-rejectability?

Answer 3

the collective supply of a public good for all means that it cannot be rejected by people

Question 4

What is a common resource?

Answer 4

a resource that no individual or organisation can lay claim to

Question 5

What is the ‘Tragedy of the Commons’?

Answer 5

the idea that individuals acting in their own best interest will overuse a common resource, leading to the depletion or degradation of this resource

Question 6

Why does the tragedy of the commons occur?

Answer 6

as the common resource is non-excludable but it is rivalrous

Question 7

What are three possible solutions to the tragedy of the commons?

Answer 7

• rules and regulations
• cultural norms
• creating property rights

Question 8

Give an example of a rule or regulation that would offer a solution to the tragedy of the commons

Answer 8

limiting the number of days that people can fish for

Question 9

What is a problem with using rules and regulations as a solution to the tragedy of the commons?

Answer 9

• often inefficient and ineffective
• limits the tragedy but rarely prevents it

Question 10

Give an example of how cultural norms could be a solution to the tragedy of the commons

Answer 10

(example)
- overfishing results in cultural disapproval
- one who honours the norms is repcted
- can be effective in relatively small, self-governing communities

Question 11

What is a problem with using cultural norms as a solution to the tragedy of the commons?

Answer 11

take a long time for cultural norms to develop

Question 12

Explain how the process of creating property rights offers a solution to the tragedy of the commons

Answer 12

• it makes the common resource excludable - therefore it makes the common resource behave like a private good
• e.g. tradable fishing allowances

Question 13

What is a problem with using property rights as a solution to the tragedy of the commons?

Answer 13

• the common resource may not stay in one place (e.g. fish)
• would need a multi-country system to be truly effective