Question

When choosing the right amount of a public good to supply, the government:

a.	often guesses, because people have an incentive to overstate a good's value

b.	often fails to provide it, because people have an incentive to understate a good's value

c.	often provides too much, because people have an incentive to understate a good's value

d.	often provides too little, because people have an incentive to overstate a good's value.

Answer 1

Ans:- When choosing the right amount of public good to supply, the government:

a. often guesses, because people have an incentive to overstate a good's value.

People often have the incentive to overstate the value of public goods when they are provided free of cost and understate the value when to share the cost. As the value of public goods are not revealed and are not sold in the market, government uses cost benefit analysis to decide whether to provide a particular public good and how much of it to provide.