The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

-Why do market failures arise in case of public goods?

Question

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
 
-Why do market failures arise in case of public goods?

Quizplus · Accepted Answer

Market failures arise in case of public goods because the quantity produced is too less from the society's point of view. This is because public goods have the characteristic of non-excludability, meaning that individuals cannot be excluded from consuming the good or service, even if they do not pay for it. As a result, there is a free-rider problem where individuals may choose not to pay for the public good while still benefiting from it. This leads to underproduction of the public good by the private market, and hence a need for government intervention. The payoff matrix provided does not relate to the question.

The Table Below Shows the Payoff (Profit) Matrix of Firm