752 section 14 Market Failure and the Role of Government
We have seen that, in the cases of public goods, common resources, and artificially
scarce goods, a market economy will not provide adequate incentives for efficient levels
of production and consumption. Fortunately for the sake of market efficiency, most
goods are private goods. Food, clothing, shelter, and most other desirable things in life
are excludable and rival in consumption, so the types of market failure discussed in
this module are important exceptions rather than the norm.Module 76 AP Review
Check Your Understanding
- For each of the following goods, indicate whether it is
excludable, whether it is rival in consumption, and what kind of
good it is.
a. a public space such as a park
b. a cheese burrito
c. information from a website that is password-protected
d. publicly announced information about the path of an
incoming hurricane
2. Which of the goods in Question 1 will be provided by a private
producer without government intervention? Which will not be?
Explain your answer.
Solutions appear at the back of the book.
Tackle the Test: Multiple-Choice Questions
- Which of the following types of goods are always nonrival in
consumption?
a. public goods
b. private goods
c. common resources
d. inferior goods
e. goods provided by the government - The free-rider problem occurs in the case of
a. private goods.
b. common resources.
c. artificially scarce goods.
d. motorcycles.
e. all of the above. - Public goods are sometimes provided through which of the
following means?
I. voluntary contributions
II. individual self-interest
III. the government
a. I only
b. II only
c. III only
d. I and III only
e. I, II, and III
4. Market provision of a public good will lead to
a. the efficient quantity.
b. the efficient price.
c. inefficiently high production of the good.
d. inefficiently low production of the good.
e. none of the good being provided.
5. The overuse of a common resource can be reduced by which of
the following?
a. a Pigouvian tax
b. government regulations
c. tradable licenses
d. the assignment of property rights
e. all of the above