Question:
Market fails to produce public goods because
(1) there is no demand for such goods.
(2) it is impossible for the producer to charge a price from the consumers of such product.
(3) such products usually entail large external costs in production and generate external benefits in consumption.
(4) their production leads to increase income inequality.
(5) private firms generally have a higher production cost than the public sector.
Correct Answer:
(2)
Answer Explanation:
Public goods are characterized by “non-excludability.” Once the good is provided (like a lighthouse or national defense), it is impossible to prevent non-payers from using it. Because producers cannot force consumers to pay (the free-rider problem), private markets fail to supply these goods.
Topic: Public Goods Year: 2020
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