DEFINITIONS
There are four types of goods, depending on whether or not the good is excludable and whether or not it is rival in consumption. They are:
• Private goods: these are rival in consumption and excludable
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1. Law enforcement is an example of: A) a public good. B) a private good. C) a negative externality. D) moral hazard.
• Common resources: these are rival in consumption and nonexcludable
• Artificially scarce goods: these are nonrival in consumption and excludable
• Public goods: these are nonrival in consumption and nonexcludable
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HINT Four Types of Goods
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2. The security and alarm system at a bank is an example of: A) a public good. B) a private good. C) a negative externality. D) moral hazard.
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பைடு நூலகம்
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2. The security and alarm system at a bank is an example of: A) a public good. B) a private good. C) a negative externality. D) moral hazard.
Goods that are nonexcludable suffer from the freerider problem: individuals have no incentive to pay for their own consumption and instead will take a “free ride” on anyone who does pay.
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3. People in a community would not be likely to voluntarily “chip in” for a security team that would patrol the entire community because: A) most people are not rational consumers. B) they can be free-riders. C) they believe that crime cannot be prevented. D) they believe it would be an inefficient production of the service.
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3. People in a community would not be likely to voluntarily “chip in” for a security team that would patrol the entire community because: A) most people are not rational consumers. B) they can be free-riders. C) they believe that crime cannot be prevented. D) they believe it would be an inefficient production of the service.
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SCENARIO
A Policeman’s Lot
Given how much individuals and businesses spend on security and theft prevention, why do we have public police departments?
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1. Law enforcement is an example of: A) a public good. B) a private good. C) a negative externality. D) moral hazard.