Page 794 - Krugmans Economics for AP Text Book_Neat

We have seen that, in the cases of public goods, common resources, and artificially
scarce goods, a market economy will not provide adequate incentives for efficient levels
of production and consumption. Fortunately for the sake of market efficiency, most
goods are private goods. Food, clothing, shelter, and most other desirable things in life
are excludable and rival in consumption, so the types of market failure discussed in
this module are important exceptions rather than the norm.

Module 76 AP Review
Solutions appear at the back of the book.

Check Your Understanding
1. For each of the following goods, indicate whether it is 2. Which of the goods in Question 1 will be provided by a private
excludable, whether it is rival in consumption, and what kind of producer without government intervention? Which will not be?
good it is. Explain your answer.
a. a public space such as a park
b. a cheese burrito
c. information from a website that is password-protected
d. publicly announced information about the path of an
incoming hurricane

Tackle the Test: Multiple-Choice Questions
1. Which of the following types of goods are always nonrival in 4. Market provision of a public good will lead to
consumption? a. the efficient quantity.
a. public goods b. the efficient price.
b. private goods c. inefficiently high production of the good.
c. common resources d. inefficiently low production of the good.
d. inferior goods e. none of the good being provided.
e. goods provided by the government
5. The overuse of a common resource can be reduced by which of
2. The free-rider problem occurs in the case of the following?
a. private goods. a. a Pigouvian tax
b. common resources. b. government regulations
c. artificially scarce goods. c. tradable licenses
d. motorcycles. d. the assignment of property rights
e. all of the above. e. all of the above
3. Public goods are sometimes provided through which of the
following means?
I. voluntary contributions
II. individual self-interest
III. the government
a. I only
b. II only
c. III only
d. I and III only
e. I, II, and III

752 section 14 Market Failure and the Role of Gover nment