Discussion:
Directions: Please answer each of the following questions in a paragraph for each. Explain your thoughts with theory and examples where applicable.
1. For each of the following, determine whether it is a private good, public good, common resource or a club good.
1. Congested toll roads
2. Knowledge
3. Fish in the ocean
4. National defense
5. Congested nontoll roads
6. Cable TV
7. The environment
8. Fire protection
9. Ice-cream cones
10. Uncongested toll roads
11. Clothing
12. Uncongested nontoll roads
2. The creation of knowledge is a public good. Because knowledge is a public good, profit-seeking firms tend to free-ride on the knowledge created by others and, as a result, devote too few resources to the creation of knowledge. How does the U.S. government correct for this apparent market failure?
3. Why do wild salmon populations face the threat of extinction while goldfish populations are in no such danger?
4. List the three most important expenditure programs of the federal government. How do they differ from the three most important expenditure programs of state and local governments? Explain why it makes sense for the federal government to purchase "national defense" rather than state governments.
5. Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?