Question

1.

A)

A U.S. treasury bond is something offered by the federal government in the United States. Think about a treasury bond in the context of rival/non-rival and excludable/nonexcludable. With that in mind, is a U.S. treasury bond classified as a "private good" or "public good" in the United States?

B)

Suppose that by living in the United States, you inherently benefit from the overall strength of the U.S. dollar in foreign currency markets. Is your benefit rival or non-rival? Is it excludable or nonexcludable? Briefly explain why

Answer 1

(A)

The treasury bond (T-bond) is a private good.

When one individual buys a T-bond, that particular T-bond is not available for consumption by another individual, thus is it rival in consumption. Also, if an individual doesn't pay for the T-bond, she can be excluded from buying it, thus it is excludable in consumption. A rival and excludable good is called a private good.

(B)

When US dollar loses strength, US exports rise, US imports fall and thus US net exports rise, increasing US GDP, which benefits me. However, all other US residents equally benefit from this increase in GDP, so the benefit is non-excludable. Also, my availing the benefit doesn't decrease the ability of another resident to enjoy the same benefit. So, the benefit is non-rival. Thus, this benefit is a public good.