Public goods are underprovided by the private market because they are non-excludable and non-rivalrous, leading to free-rider problems where individuals have little incentive to pay for the good, despite its potential high marginal social benefit. This results in a willingness to pay that is less than the marginal social benefit, causing underprovision.

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Public Goods Are

Question 27

Multiple Choice

Public goods are

A) underprovided by the private market because the marginal cost of production is too high.
B) overprovided by the private market because the marginal benefits of consumption are too high.
C) underprovided by the private market because people's willingness to pay for the good is less than the marginal social benefit of the good.
D) underprovided by the private market because the marginal benefits of consumption are too low.

Correct Answer: