Section8

Question 1

What are the two characteristics used to classify goods in the economy?

Answer 1

1. Excludable: A good is excludable if a person can be prevented from using it when they do not pay for it.
2. Rival: A good is rival if one person’s use diminishes other people’s use.

Question 2

What is a public good?

Answer 2

A public good is non-rival and non-excludable, e.g., national defence and lighthouses.

Question 3

What is the free rider problem?

Answer 3

A free rider is someone who benefits from a good without paying for it, leading to under-provision of public goods by the market.

Question 4

How can the government solve the free rider problem?

Answer 4

• Provide public goods funded through tax revenue.
• Introduce a fixed fee for access.

Question 5

What is a common resource?

Answer 5

A common resource is rival but non-excludable, e.g., fish in the ocean and the atmosphere.

Question 6

What is the tragedy of the commons?

Answer 6

Overuse of a common resource leads to depletion, harming everyone. Example: overfishing.

Question 7

What are possible solutions to the tragedy of the commons?

Answer 7

• Government intervention: Usage rules and enforcement.
• Privatisation: Assign property rights.
• Self-organisation: Local management of resources.

Question 8

What are mixed public goods?

Answer 8

Goods that are non-rival but excludable, e.g., highways, parks, and theatres.

Question 9

What is the optimal pricing policy for mixed public goods like tunnels?

Answer 9

• Peak demand price = Marginal Cost during peak.
• Off-peak price = 0.
• Introduce a fixed fee for access.

Question 10

What is the atmosphere’s role as a common resource?

Answer 10

The atmosphere protects life by providing oxygen and regulating temperature. Excessive greenhouse gas emissions harm its balance.