Quiz 15: The Shortcomings of Free Markets

Business

The examples of public goods are public transport, and atmosphere. The use of public transport does not cause harm to it. It is difficult to exclude the people from the use of public transport. Atmosphere is also considered as a public good. Individuals cannot be excluded from the consumption of atmosphere. Consumption of an atmosphere by one person does not affect on the consumption by other persons. All the people can simultaneously enjoy the benefits of atmosphere.

The opportunity cost to the society of a 100-mile truck trip is equals to value of the availability of goods and services that are transported by 100-miles trip. The price of gasoline is not sufficient to represent the opportunity cost because the clean environment relinquishes due to 100-miles truck trip. Truck trips lead to pollute the environment. So, the forgone cost of clean environment is required to consider while measuring the opportunity cost to the society of a 100-mile truck trip.

The important role of a government is to provide public goods and services. The example of public goods and services provided by a government are public transport, road maintenance, security to the people. Economists consider public transport as a public good because it is difficult to exclude the people from the use of it. Security provided by a local government is also considered as public good because it benefits to all the people. People cannot be excluded from using the road, thus, it is considered as a public good.

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