Question 1

The creation of knowledge is a public good. Because knowledge is a public good, profit-seeking firms tend to free-ride on the knowledge created by others and, as a result, devote too few resources to the creation of knowledge. How do governments correct for this apparent market failure?

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Question 2

What are the private and social costs associated with over-consumption of alcohol and what options are available for the government to correct this?

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Question 3

___________ is a survey-based approach that aims to place a monetary value on a good through getting respondents to state a preference and a willingness to pay.

Accepted Answer

Contingent valuation method is a technique used to estimate the value people place on goods not traded in markets, such as environmental goods. Respondents are asked how much they are willing to pay (WTP) or willing to accept (WTA) compensation for a given change in the provision of that good. The results of the survey are then used to determine the value of the good.

Question 4

What is meant by goods that are excludable and rival?

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Question 5

Which is not a private benefit from education?

Accepted Answer

A more productive workforce is a benefit that extends beyond just the individual who received the education and can positively impact society and the economy as a whole. Therefore, it is not considered a private benefit, but rather a social benefit.

Question 6

What are the characteristics of common resources and why do governments seek to limit the use of common resources?

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Question 7

The government often intervenes when private markets fail to provide an optimal level of certain goods and services. For example, the government imposes an excise tax on fuel to account for the negative externality that drivers impose on one another. Why might the private market not reach the socially optimal level of traffic without the help of government?

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Question 8

Which of the following could be a merit good?

Accepted Answer

Education is a merit good as it is considered to have positive externalities, such as a more educated and skilled workforce and a more informed and engaged citizenry. It may also help to reduce income inequality and improve social mobility. The government may therefore provide education as a public good or subsidize its provision to ensure its accessibility to all.

B, C, and D are public goods or services that are essential for the functioning of society and the protection of citizens' safety and well-being, but they are not necessarily merit goods as they are not primarily aimed at promoting social welfare through positive externalities.

Question 9

De-merit goods

Accepted Answer

De-merit goods refer to goods that are considered harmful to individual consumers and also have negative externalities on society. Over consumption of these goods is also a concern for the government, hence de-merit goods can be all of the above.

Question 10

Place each of the following in the correct location in the table.
 $\begin{array}{c}
\text { Rival? }\
\text { Excludable? }
\begin{array}{|l|l|l|}
\hline&\text { Yes }&\text { No }\
\hline \text { Yes }& \text { Private Goods } & \text { Club Goods } \
\hline \text { No }&\text { Common Resources } & \text { Public Goods }\
\hline
\end{array}\end{array}$ 
a. Congested toll roads
b. Knowledge
c. Fish in the ocean
d. National defence
e. Congested non-toll roads
f. DSTV
g. The environment
h. Fire protection
i. Chocolate
j. Uncongested toll roads
k. Clothing
l. Uncongested non-toll roads

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Question 11

A congested toll road is

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...

Question 12

Which merit good is likely to be under consumed when left to the market mechanism?

Accepted Answer

Education is the most likely merit good to be under consumed when left to the market mechanism. This is because education has positive externalities, meaning that the benefits of education extend beyond the individual receiving the education and onto society as a whole. This means that individuals may not take into account the full social benefits of education when making their consumption decisions, and therefore may not consume enough of it.

Question 13

Some advocates of anti-poverty programs claim that fighting poverty is a public good. Describe why government intervention may be necessary to reduce poverty.

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Question 14

Why might merit goods be under-consumed if left to the market and so what can be done to correct this problem?

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Question 15

What are the characteristics of public goods, why is there a free rider associated with public goods and what determines whether the government should make provision for public goods?

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Question 16

If a person can be prevented from using a good, the good is said to be

Accepted Answer

If a person can be prevented from using a good, then it is excludable. This means that there is some sort of barrier or cost to accessing or using the good, such as a ticket price, membership fee, or locked gate. Excludability is one of the four key characteristics of goods, along with non-excludability, rivalry, and non-rivalry. Common resources are non-excludable but rival, public goods are non-excludable and non-rival, and rival goods are either excludable or non-excludable.

Question 17

Which de-merit good is likely to be over consumed when left to the market mechanism?

Accepted Answer

De-merit goods are those goods which are harmful to the consumers or society. Tobacco is a de-merit good which is over consumed when left to the market mechanism. This is because the market mechanism does not take into account the negative externalities associated with tobacco consumption, such as health problems and environmental pollution. As a result, the price of tobacco products does not reflect their true social cost, leading to overconsumption by consumers.

Question 18

Why do wild salmon populations face the threat of extinction while goldfish populations are in no such danger?

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Quiz 10: Public Goods, Common Resources and Merit Goods