Public goods represent a market failure because
A) they are provided by firms with market power.
B) positive externalities are created through their production.
C) by their very nature they are nonexcludable and nonrival, which makes it difficult for the private sector to supply them profitably.
D) there is incomplete information regarding their quality.

Question

Quizplus · Accepted Answer

Public goods are characterized by nonexcludability and nonrivalry, meaning that no one can be effectively excluded from using them and one person's use does not diminish another's. These characteristics lead to the free-rider problem, where individuals have an incentive to consume the good without paying for it, making it unprofitable for private firms to supply these goods. This results in a market failure where the market does not efficiently allocate resources to produce public goods.

Public Goods Represent a Market Failure Because