Suppose that a private-sector firm produces two goods: Good 1 is a private good and Good 2 is a public good. Which of the following statements is TRUE?
A) If a consumer spends more money on Good 1, she gets more Good 1.
B) If a consumer spends more money on Good 2, she gets more Good 2.
C) If a consumer spends less money on Good 1, she gets less Good 2.
D) If a consumer spends less money on Good 2, she gets less Good 1.

Question

Quizplus · Accepted Answer

Good 1 is a private good, which means that its consumption is rival and excludable. When a consumer spends more money on Good 1, she is able to purchase more of it. This is not necessarily true for Good 2, which is a public good. The consumption of a public good is non-rival and non-excludable, which means that one person's consumption does not reduce the amount available to others and it is difficult to prevent anyone from benefiting from its consumption. Therefore, the amount of Good 2 that a consumer receives does not necessarily increase with the amount of money spent on it.

Suppose That a Private-Sector Firm Produces Two Goods: Good 1