1. Explain that ‘public goods’ are under produced or not produced at all if the decisions...

1. Explain that ‘public goods’ are under produced or not produced at all if the decisions are left to private decisions-makers.

Expert Solution

Public goods refer to a commodity or service that is made available to all members of a society, free of charge,buyers do not directly pay for public goods (although they often pay for them indirectly.such as through tax). Public goods has two characterstics. It is non-excludable and non-rivalrous.

Non-excludable -It is costly and impossible for one user to exclude other from using a good.
Non-rivalrous -It means it is freely available to all and individuals do not need to compete with each other

Example - law enforcement, Naitional defence, street lighting

So, if the decision to produce public goods left with private decision makers then either they will under produce or not produce at all. Because firm produce for profit. it produces only those goods for which it can hope to earn profit.It is also be noted that private market can not produce public goods because these are produced by goverment spending and taxes and it is up to the goverment what output of public goods is appropriate for society. To do this goverment must estimate the social benefit from making public goods and not the profit(as is the case for private firms ).

Rahul Sunny answered 1 year ago

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