Why is it difficult to determine how much of a public good to produce and who should pay for it?
This is a micro economic essay question where a public good is viewed as one that people have equal access to but dderive different utility from it or value it differently.so why is it difficult to determine how mucc of it to produce and who should pay for it?
- holdonLv 41 decade agoFavorite Answer
the problem with all public goods is the concept of a "free rider"
everyone wants the good to some degree, but most are not willing to pay for it directly, or are unable to pay for it.
Take a public park, some will pay for its use, to have a sporting game, or go for a run, most people would use it, but not want to pay for it.
If the public as a whole pays for it, everyone is free to use it as much as they want.
How about a pay-for-police service. If all your neighbours pay for it, you probably don't need to because you will get some of the benefit without having to pay a dime
The US army cannot defend certain houses from foreign invasion, how much private roads to you build? where do they go? who pays for them?
- 1 decade ago
There is no way for private producers to capture profits from it (consumption of it is non-excludable and non-rivalrous). So it will be under-produced. No market for it -- so what is the optimal level?
Answer: politics. :-)
- 1 decade ago
The answer is in your question. The product is not equally distributed (people use different amounts), therefore its value is not constant.