Economics Question...................

timer Asked: Aug 20th, 2014
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Question Description

What role does government play in providing public goods?

Tutor Answer

Pavan K
School: University of Maryland

Private firms have a profit incentive to cut costs and develop products demanded by consumers. In the government sector this profit motive is often absent. Therefore government bodies have a greater tendency to be overstaffed and inefficient.

A good is said to be nonexcludable when individuals cannot reasonably be excluded from consuming it. "Fully accessible" is another term. Once provided, anyone can use the fully accessible good at no cost. This gives rise to the "free-rider problem:" once provided, people can use the public good without paying for it.

Thus, there is no incentive for the private sector to provide the public good; they cannot collect subsequent revenues.

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