Which statement about public goods is correct?

Which statement about public goods is correct?

• A. A public good is excludable and rivalrous; markets provide them efficiently; example private roads.
• B. A public good is non-excludable and non-rivalrous; markets underprovide; example national defence.
• C. A public good is non-excludable and rivalrous; markets provide them efficiently.
• D. A public good is non-excludable and non-rivalrous; government provision improves efficiency.

Answer: (D)

Public goods are non-excludable and non-rivalrous: once provided, you can’t easily prevent people from using them, and one person’s use doesn’t reduce another’s. Because of non-excludability, private firms can’t easily charge everyone who benefits, so they have little incentive to pay and supply public goods. Because they’re non-rivalrous, there’s little extra benefit to higher private demand, so markets under-provide them. As a result, the market alone often fails to deliver enough of these goods. The government can step in, funded by taxes, to provide the good and achieve a higher overall level of welfare by avoiding the free-rider problem. National defence is a classic example: everyone benefits, and one person’s protection doesn’t reduce others’ protection, so government provision tends to be more efficient. This aligns with the statement that a public good is non-excludable and non-rivalrous, markets underprovide, and government provision improves efficiency.

Public goods are non-excludable and non-rivalrous: once provided, you can’t easily prevent people from using them, and one person’s use doesn’t reduce another’s. Because of non-excludability, private firms can’t easily charge everyone who benefits, so they have little incentive to pay and supply public goods. Because they’re non-rivalrous, there’s little extra benefit to higher private demand, so markets under-provide them. As a result, the market alone often fails to deliver enough of these goods. The government can step in, funded by taxes, to provide the good and achieve a higher overall level of welfare by avoiding the free-rider problem. National defence is a classic example: everyone benefits, and one person’s protection doesn’t reduce others’ protection, so government provision tends to be more efficient. This aligns with the statement that a public good is non-excludable and non-rivalrous, markets underprovide, and government provision improves efficiency.