Suppose a public good that is worth $1 billion is not produced by the market, and so the government provides it, but at a cost of $3 billion. This attempt to correct a market failure has:
A) been successful since the public good is now produced.
B) given rise to the problem of free riders.
C) resulted in a government failure since use of resources is now less efficient.
D) resulted in an information asymmetry for the government.

Question

Quizplus · Accepted Answer

The government intervention resulted in a cost that exceeds the value of the public good, indicating inefficient resource use and thus a government failure.

Suppose a Public Good That Is Worth $1 Billion Is