Question

1. Do markets fail? Some say yes, while others say no. Briefly outline arguments for and against.

2. What is the public good argument for government provision? Give two fully described reasons why government can't solve the public goods problem.

Answer 1

Government may not be able to solve the problem of public goods because of several reasons. One of them is the associated free rider problem which is also prevalent in case of private provision of public goods. The government may not be able to find the true willingness to pay for the provision of public goods such as a park or a road. Due to this reason, it may result in under provision of a public good. Secondly it is difficult to analyse the preferences of the consumers with respect to the priority towards the kind of public good they want. The government may find it difficult to choose between a park or a road or a public utility