Table of contents

0. Basic Principles of Economics1h 5m
1. Reading and Understanding Graphs59m
2. Introductory Economic Models1h 10m
3. The Market Forces of Supply and Demand2h 26m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
6. Introduction to Taxes and Subsidies1h 46m
7. Externalities1h 12m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. The Costs of Production2h 35m
11. Perfect Competition2h 23m
12. Monopoly2h 13m
13. Monopolistic Competition1h 9m
14. Oligopoly1h 26m
15. Markets for the Factors of Production1h 26m
16. Income Inequality and Poverty35m
17. Asymmetric Information, Voting, and Public Choice39m
18. Consumer Choice and Behavioral Economics1h 16m

8. The Types of Goods

The Free Rider Problem and the Tragedy of the Commons

Microeconomics

8. The Types of Goods

The Free Rider Problem and the Tragedy of the Commons

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Multiple Choice

Making customers pay per use of a public good is inefficient because:

It results in deadweight loss

MC of the use of the public good once provided is zero

It uses willingness to pay as a measure of preferences

Both (a) and (b)

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Verified step by step guidance

Understand the nature of public goods: Public goods are non-excludable and non-rivalrous, meaning that one person's use of the good does not reduce its availability to others, and people cannot be prevented from using it.

Identify the concept of deadweight loss: Deadweight loss occurs when the allocation of resources is not efficient, leading to a loss of economic value. Charging for a public good can create deadweight loss because it restricts access to a good that could otherwise be used freely by everyone.

Examine the marginal cost (MC) of using a public good: Once a public good is provided, the marginal cost of an additional person using it is zero. Charging a price above zero for its use can lead to inefficiency because it discourages consumption that has no additional cost.

Consider the role of willingness to pay: Using willingness to pay as a measure of preferences can be problematic for public goods because it may not accurately reflect the value of the good to all individuals, especially if some cannot afford to pay.

Conclude why both (a) and (b) are correct: Charging per use of a public good results in deadweight loss and is inefficient because the marginal cost of use is zero, making both (a) and (b) valid reasons for inefficiency.