Chapter 12: Public Goods and Resources

Question 1

What are the four types of goods based on excludability and rivalry in consumption?

Answer 1

Private goods, Club goods, Public goods, Common resources.

Question 2

Define a private good and give an example.

Answer 2

A private good is excludable and rival in consumption. Example: Tacos, cars.

Question 3

What is a club good (natural monopoly)? Provide an example.

Answer 3

A club good is excludable but non-rival in consumption. Example: Netflix, Spotify.

Question 4

What characterizes a public good?

Answer 4

Public goods are nonexcludable and non-rival in consumption.

Question 5

Give examples of public goods.

Answer 5

National defense, clean air, public fireworks.

Question 6

Define a common resource and give examples.

Answer 6

A common resource is nonexcludable but rival in consumption. Examples: Fish in the ocean, congested public roads.

Question 7

What is the “free-rider problem” in public goods?

Answer 7

The free-rider problem occurs when people benefit from a good without paying, leading to under-provision.

Question 8

Why does the government often provide public goods?

Answer 8

Governments provide public goods to address the free-rider problem and ensure socially optimal quantities are available.

Question 9

What is cost-benefit analysis?

Answer 9

It’s a method used by governments to compare the costs and benefits of providing a public good.

Question 10

Why might people overstate their benefits from a public good?

Answer 10

To influence the government to provide the good, as they don’t directly pay for it.

Question 11

What challenge exists in measuring benefits in cost-benefit analysis?

Answer 11

It’s difficult to quantify societal benefits in monetary terms, like valuing a clean environment.

Question 12

Why are private goods efficiently managed by markets?

Answer 12

Private goods are excludable and rival, giving suppliers an incentive to produce and consumers an incentive to buy.

Question 13

How do public goods generate positive externalities?

Answer 13

They provide benefits to people who do not pay, often improving overall societal welfare.

Question 14

What are common resources?

Answer 14

Goods that are nonexcludable (can’t stop access) but rival in consumption (one’s use reduces availability for others).

Question 15

What main problem is associated with common resources?

Answer 15

Overconsumption, as individuals don’t consider the impact of their consumption on others.

Question 16

What is the “Tragedy of the Commons”?

Answer 16

A scenario where shared resources are overused because personal incentives outweigh the collective interest

Question 17

Give an example of the “Tragedy of the Commons.”

Answer 17

Overfishing in international waters or overgrazing on shared pasture land.

Question 18

What are negative externalities in the context of common resources?

Answer 18

Overuse imposes costs on others, such as reduced resources available for other users.

Question 19

What are corrective taxes, and how do they address common resources?

Answer 19

Taxes on resource use (e.g., fishing licenses) that discourage overconsumption by increasing the cost of access.

Question 20

What are command-and-control regulations?

Answer 20

Government-imposed rules that directly limit the use of resources, such as bans on hunting endangered species.

Question 21

What are tradable permits, and how do they work?

Answer 21

Quotas allowing limited resource use that can be traded, such as New Zealand’s ITQs for fishing to limit overfishing.

Question 22

Why is it hard to regulate resources like tuna with tradable permits?

Answer 22

Tuna swim across international waters, beyond any single country’s jurisdiction, making regulation difficult.

Question 23

How does privatizing common resources help prevent overuse?

Answer 23

Private ownership creates an incentive to manage resources sustainably, as owners bear the cost of overuse.

Question 24

What role do property rights play in conserving common resources?

Answer 24

Clear property rights encourage owners to preserve resources since they benefit directly from sustainable use.

Question 25

Why can’t markets efficiently manage public goods or common resources?

Answer 25

Public goods are under-supplied due to nonexcludability, and common resources are over-consumed due to rivalry and nonexcludability.

Question 26

What role does government intervention play with public goods and common resources?

Answer 26

Governments can improve resource allocation by addressing issues of nonexcludability and rivalry.