Question

The profit motive is:

A.ineffective at producing consumer goods

B. inherently beneficial to society if left alone to pursue its own self interests

C. effective at producing goods when consumption is non-rival or non-excludable

D. often at odds with societies' interests

why?

Answer 1

The correct answer is

D. Often at Odds with societies' interests.

The pofit motive refers to the basic incentive of the firms to produce, which is in order to make profit. The profit motive is indeed effective at producing consumer goods, as they are rival and/or excludable, hence may have a positive and greater than zero marginal cost. However, it is not inherently beneficial to society if left alone to pursue its own self respect, as it may produce negative externalities, such as pollution. The public goods are the one, characterized as non-rival and non-excludable, and the profit motive is certainly not effective at producing public goods. The reason being, that private sector with profit motive can not act against its interest to produce goods for which there is essentially zero marginal cost. There is a reason that public goods are directly connected to the market failure, in the sense that they reduce market eficiency, as the public sector usually fails to provide the optimum public goods. But yes, public goods raises the welfare in society, while negative externality decreases the welfare, hence, it is true that profit motive is often at odd with society's interests, as due to insufficiency to provide public goods and producing negative externalities, both of which dampen the welfare of society.