Question

Explain why democracy can choose inefficient amounts of public goods.

Answer 1

Ans.

Inefficient amount of public good is chosen by the democracy is because public goods are responsible and known to cause market failure, as these goods are provided by the govenment free of cost and when any thing is given for free , people tend to exploit it. because comsumption of this good by one citizen , does not limit other citizens (even if he/she paying taxes or not ) from using it. and market failure happens when these citizens use the service and don't pay for it.

Ex-

National defense is a type of public good which is provided by the government to each one of its citezen , whether he/ she is paying taxes or not .

Note - Optimal amount is achieved when MC (marginal Cost ) = MB (Marginal Benefit) and inefficiency is required to reach as close to this optimal amount.

-----------------------------