1. Describe the difference between public goods and private goods. Explain why government action is necessary to ensure the provision of public goods.
Public goods are goods or services that are non-excludable and non-rivalrous in consumption, meaning that they are available for everyone to use and one person's consumption of the good does not diminish its availability to others. Examples of public goods include national defense, clean air, and street lighting.
Private goods, on the other hand, are excludable and rivalrous in consumption, meaning that they are only available to those who pay for them and one person's consumption of the good diminishes its availability to others. Examples of private goods include food, clothing, and electronic devices.
Government action is necessary to ensure the provision of public goods because the free market mechanism alone is not sufficient to provide them. Since public goods are non-excludable, people have an incentive to free-ride and consume the goods without paying for them. This leads to under-provision of public goods in a purely market-driven economy.
The government plays a crucial role in providing public goods by funding and providing these goods and services through taxation. By collecting taxes from the population, the government can allocate resources to provide public goods that benefit society as a whole. Additionally, government intervention can help overcome the collective action problem associated with public goods by ensuring that everyone pays their fair share for services that benefit everyone.