In the case of public goods:

Question

Quizplus · Accepted Answer

Public goods have the characteristic of being non-excludable and non-rivalrous, which means that it is difficult to exclude people from using them and their use by one person does not diminish their availability to others. Due to this nature, there are free-rider problems, where people may not be willing to pay for the good but still benefit from them. Therefore, the government has a role in providing public goods, as private firms may under-produce or not produce them at all. The government could produce the goods themselves or pay private firms to produce them. Option A is incorrect as the market may not always provide a socially optimal level of public goods. Option C is incorrect as the government may sometimes pay private firms to produce public goods. Option D is incorrect as there is an incentive to be a free rider and consume the good without paying for it.

In the Case of Public Goods