Part I. Voluntary provision: This question makes a point about the voluntary con

Question

Part I. Voluntary provision: This question makes a point about the voluntary contribution case we described in class.

1. Consider the voluntary provision of a pure public good numerical example we posited in Lecture. Specifically, there are 10 identical users with T Bi (G) = 3G?2G2and the cost is T C(G) = 10G2 . We saw that the efficient level of the public good was G? = 0.5.

True or False: Because of the free rider problem, everyone in this situation will voluntarily donate 0, and the total amount of the public good provided will therefore be G = 0. (2 points)

Part I. Voluntary provision: This question makes a point about the voluntary contri- bution case we described in class. 1. Consider the voluntary provision of a pure public good numerical example we 3G-2G2 posited in lecture. Specifically, there are 10 identical users with TB'(C) and the cost is TC(G) 10G2. We saw that the efficient level of the public good was G*-0.5. True or False: Because of the free rider problem, everyone in this situation will voluntarily donate 0, and the total amount of the public good provided will there- fore be G0. (2 points)

Explanation / Answer

1.

The goods and services which have unique characteristic of non-excludability (consumption by one cannot reduce the quantity of consumption by others) and non-rivalry (consumption by one cannot withheld the consumption by others), and which cannot be provided by the private market efficiently is called the public goods and services.

The “non-excludability” property of public goods gives rise to the problem called free rider problem. The free rider problem occurs when a person enjoys the benefit of certain products without contributing to its cost. The free-rider problem is the basic reason why government provides the public goods. The classic example of free rider problem is the national defense. The free rider problem occurs when a person enjoys the benefit of certain products without contributing to its cost.

In this case, each of the 10 person will think that the other person will contribute 0.5 unit voluntarily and each person will enjoy the public good without contributing. Thus, there arises free rider problem and no public good is provided. This is because contributin is volutary and every one expect the other to be the volunteer.

TRUE

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