Market Failure and the Role of the Government

Question 1

What are the two characteristic of a good?

Answer 1

Excludable and Rival

Question 2

What does excludable mean?

Answer 2

the property of a good whereby a person can be prevented from using it

Question 3

What does rival mean?

Answer 3

the property of a good whereby one person’s use diminishes other people’s use

Question 4

What are the four types of goods and their characteristics?

Answer 4

Public good- not rival & not excludable
Private good- Both rival and excludable
Common resource- rival but not excludable
Natural Monopoly -excludable but not rival

Question 5

What is the free rider probleme?

Answer 5

a person who receives the benefit of a good but avoids paying for it
because public goods are not excludable, the free rider problem prevents the private market from supplying them.

Question 6

What is the tragedy of the commons?

Answer 6

a parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole
collectively owned land where sheep are allowed to graze
the town grows and so does the number of sheep grazing
after a while the land is left useless and sheep cant graze there anymore

Question 7

What is an externality?

Answer 7

the effects of production and consumption activities not directly reflected in the market
can be positive of negative

Question 8

What are the four types of externalities?

Answer 8

Negative production externalities
Positive production externalities
Negative consumption externalities
Positive consumption externalities