Competitive markets are unlikely to produce the efficient quantity of a public good because:
A)public goods are nonrival in consumption but exclusion costs are low.
B)public goods are nonrival and are characterized by nonexclusion.
C)the marginal benefit derived from a public good is less than the marginal cost of producing the good.
D)the marginal benefit of a public good increase with an increase in consumption of the good.

Question

Quizplus · Accepted Answer

Competitive markets cannot exclude those who do not pay for the public good; therefore, individuals will have a free-rider problem and tend to under-consume public goods. As a result, the market outcome will not provide the efficient quantity of the public good. Public goods are nonrival in consumption, meaning additional consumers do not reduce the amount available for others, and this characteristic is not suitable for competitive markets, which function better in rival and exclusive goods. The marginal benefit of a public good can increase as more people consume it, but this does not provide an efficient market outcome. Finally, the fact that the marginal benefit may be lower than the marginal cost is not specific to public goods, and it is not the reason behind the inefficiency of competitive markets in this case.

Competitive Markets Are Unlikely to Produce the Efficient Quantity of a Public