Without government intervention, society is likely to get too much production of:
I.private goods that generate external costs
II.private goods that generate external benefits
IiI.public goods

A)(i) only
B)(ii) only
C)(iii) only
D)both (ii) and (iii)

Question

Without government intervention, society is likely to get too much production of:
I.private goods that generate external costs
II.private goods that generate external benefits
IiI.public goods
​
​
A)​(i) only
B)​(ii) only
C)​(iii) only
D)​both (ii) and (iii)

Quizplus · Accepted Answer

Private goods that generate external costs, such as pollution, can lead to market failure because the price mechanism doesn't account for the external harm caused to society. Without government intervention, firms would continue producing these goods as long as they are profitable, resulting in an overproduction of such goods. Private goods that generate external benefits, on the other hand, do not lead to market failure as these benefits are not accounted for in the price mechanism. Finally, public goods would also face underproduction in the absence of government intervention as they are non-excludable and non-rivalrous in nature, making it difficult for firms to profitably provide them.

Without Government Intervention, Society Is Likely to Get Too Much