Author Question: The optimal provision of a public good occurs when the sum of the marginal rate of substitution for ... (Read 102 times)

nummyann

  • Hero Member
  • *****
  • Posts: 576
The optimal provision of a public good occurs when the sum of the marginal rate of substitution for all members of society equals 1, the marginal rate of transformation.
 
  What is the relationship between the marginal rates of substitution in the competitive market? Use this relationship to explain why too few public goods are provided in the competitive market.

Question 2

The requirement that all drivers must carry auto insurance reduces
 
  A) moral hazard.
  B) the effectiveness of signaling.
  C) adverse selection.
  D) the chance of auto accidents.



todom5090

  • Sr. Member
  • ****
  • Posts: 328
Answer to Question 1

The competitive market allocation occurs where the MRS for all members of society are equal to 1. This implies that the MRS for each individual is too large relative to the optimum. In order to reduce the MRS such that the sums add up to one, we need to increase the consumption of the public good and decrease the consumption of the private good. This will reduce the MRS for each individual.

Answer to Question 2

C



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question


 

Did you know?

Medication errors are more common among seriously ill patients than with those with minor conditions.

Did you know?

Nearly all drugs pass into human breast milk. How often a drug is taken influences the amount of drug that will pass into the milk. Medications taken 30 to 60 minutes before breastfeeding are likely to be at peak blood levels when the baby is nursing.

Did you know?

The top 10 most important tips that will help you grow old gracefully include (1) quit smoking, (2) keep your weight down, (3) take supplements, (4) skip a meal each day or fast 1 day per week, (5) get a pet, (6) get medical help for chronic pain, (7) walk regularly, (8) reduce arguments, (9) put live plants in your living space, and (10) do some weight training.

Did you know?

Giardia is one of the most common intestinal parasites worldwide, and infects up to 20% of the world population, mostly in poorer countries with inadequate sanitation. Infections are most common in children, though chronic Giardia is more common in adults.

Did you know?

Immunoglobulin injections may give short-term protection against, or reduce severity of certain diseases. They help people who have an inherited problem making their own antibodies, or those who are having certain types of cancer treatments.

For a complete list of videos, visit our video library