Government Intervention - Chapter 6 (J)

Question 1

4 types of goods

Answer 1

1. private goods
2. public goods
3. common property
4. club goods

Question 2

2 ways to classify goods

Answer 2

1. rivalry
2. excludability

Question 3

rivalry

Answer 3

does the goods consumption by 1 person reduce the supply available to others

Question 4

rivalry examples

Answer 4

hospital beds, food, technology, most items

Question 5

excludability

Answer 5

is it possible to exclude a non payer from consuming the good or service

Question 6

excludability examples

Answer 6

netflix, food, private school/hospital

Question 7

private goods

Answer 7

are rival and excludable. Pure private goods generate no externalities, consumer and producers enjoy all allocated benefits and bears all associated costs.

Question 8

examples: private goods

Answer 8

housing, food, cars

Question 9

public goods

Answer 9

are non rival and non excludable. they are supplied by the government as they make no profit

Question 10

examples: public goods

Answer 10

national defence, police, footpaths, parks, free to air tv, street lights

Question 11

free rider problem

Answer 11

people who consume goods without paying for them. because public goods are non excludable it is difficult to charge people for their g/s they have already been provided with. no one has incentive to pay for public goods, leads to under provision of good and market failure.

Question 12

club goods

Answer 12

A club is what a population is divided into by consumption. Each club consumes its own public good, non-rival but excludable. Club goods must be paid for but don’t reduce anyone else’s consumption. They are often natural monopolies.

Question 13

examples: club goods

Answer 13

netflix, public swimming pools, telstra, movie theatre

Question 14

common property goods

Answer 14

rival but non-excludable and imposes a negative externality

Question 15

examples: common property goods

Answer 15

oceans, atmosphere, fishing (anyone can fish, but limited no of fish in ocean)

Question 16

Tragedy of the Commons

Answer 16

Individuals acting according to self interest rather than best interests of the whole group. “Held in common” is a resource owned by no one or by a group. Failure to preserve natural resources due to over consumption or production.

Question 17

best way to prevent tragedy of the commons

Answer 17

make common property goods private

Question 18

government policy to fix market failure

Answer 18

government needs to internalise the externality (include social benefit and cost in private benefit and cost) because price does not reflect the true value.

Question 19

how to fix tragedy of the commons

Answer 19

assign property rights:
apply a price to common property goods.
eg. 100 frogs want to live in the ocean but there is not enough space for all of them. frog #26 pays for property rights and charges rent for all frogs wanting to use the ocean. cant all afford it so now only 70 frogs live in ocean, problem fixed.

Question 20

example: fixing the tragedy of the commons

Answer 20

road tolls, charge people for using freeways.