Chapter 5 Public Goods, Public Choice, and Government Failure Summary Flashcards
What are public goods?
Public goods are characterized by nonrivalry and nonexcludability, making them different from private goods.
What is free riding?
Free riding occurs when individuals benefit from public goods without contributing to their cost, making it unprofitable for private firms to produce these goods.
What are the characteristics of private goods?
Private goods are characterized by rivalry (one person’s consumption reduces availability for others) and excludability (sellers can prevent nonpayers from accessing the good).
What are the characteristics of public goods?
Public goods have nonrivalry (one person’s consumption does not diminish availability for others) and nonexcludability (it’s difficult to exclude individuals from benefiting).
What is the free-rider problem?
The free-rider problem leads to reduced overall demand for public goods, making it unprofitable for private firms to produce them, necessitating government provision.
How does government provide public goods?
The government funds public goods through taxation, avoiding the profitability concerns faced by private firms.
How is the optimal quantity of a public good determined?
The optimal quantity occurs where the marginal benefit equals the marginal cost, ensuring efficient resource allocation.
What is cost-benefit analysis in the context of public goods?
Cost-benefit analysis evaluates whether the benefits of a project outweigh the costs, guiding government decisions on public goods provision.
What are quasi-public goods?
Quasi-public goods are goods that could be produced privately but are often provided by the government due to significant positive externalities (e.g., education).
What is public choice theory?
Public choice theory analyzes government decision-making, highlighting how market failures justify government intervention but can also lead to inefficiencies.
What is the median-voter model?
The median-voter model predicts that the preferences of the median voter will dominate outcomes in majority voting scenarios.
What is quadratic voting?
Quadratic voting allows voters to purchase votes with the cost increasing quadratically, enabling them to express the strength of their preferences.
What is the principal-agent problem in government?
The principal-agent problem arises when elected representatives act in their own interests rather than those of their constituents, potentially prioritizing reelection over sound policy.
What is rent-seeking behavior?
Rent-seeking occurs when individuals or groups seek to obtain financial gains through influencing government policy instead of through productive activities.
