Efficiency

Question 1

Distinguish between rival and non-rival goods

Answer 1

Rival = something that can only be consumed by one person, e.g. apple

Non-rival = goods that can be consumed by multiple people, e.g. internet

Question 2

Distinguish between excludable and non-excludable products

Answer 2

Excludable = private goods, e.g. you can’t go to cinema whenever, have to purchase a ticket because seats are limited

Non-excludable = public goods, e.g. a public road

Question 3

What’re the 4 categories of goods?

Answer 3

Private, public, common resources and club goods

Question 4

What is the free-rider problem?

Answer 4

A person who receives the benefit of a good but doesn’t play for it

Question 5

When will people have an incentive to ‘free-ride’?

Answer 5

If a good is non-excludable, e.g. fireworks display > external benefit to non-buyers, ignored in supplier’s prod. decision, so firework display will be under-provided by market > market failure

Question 6

How does the govt decide whether to spend public money?

Answer 6

Cost-benefit analysis > estimate total B and C to soc. (estimates likely to have big errors)

May spend on projects that have most votes (MSB and MSC not considered at all)

Question 7

When does govt failure occur?

Answer 7

When MSB not equal to MSC

Question 8

What’s the “tragedy of the commons” problem?

Answer 8

If use of common resources = unregulated, individuals act in own interest, CR get overused

Question 9

How can the govt attempt to solve the problem of a market failure caused by the absence of property rights?

Answer 9

Help defining property rights (e.g. land privatisation)

Regulate priv. behaviour (e.g. wild animal hunting)

Supply goods the market fails to supply (e.g. public parks + roads)