Author Question: Why are public goods a source of market failure? What will be an ideal ... (Read 108 times)

kwoodring · **on:** Jun 29, 2018

Why are public goods a source of market failure?

What will be an ideal response?

Question 2

The scientific method uses models to ___________.

A. clarify normative disagreements
B. avoid the need to study real questions
C. replicate all the features of the real world
D. focus on those features of reality assumed relevant for understanding a cause and effect relationship

fatboyy09 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Public goods will not generally be produced by firms in the private market. For a private profit-making firm to produce a good and make a profit, it must be able to withhold that good from those who do not pay. However, a consumer acting in his own self-interest has no incentive to contribute to the production of public goods. If the social value of the goods is greater than the cost of the resources used to produce them, the production of the goods is efficient. Thus, the private market will fail to achieve the efficient outcome.

Answer to Question 2

D Answer D uses the definition of an economic model on page 12.