Question

True or False? And why?

a. All situations that involve non-excludable goods must lead to negative externalities.

b. Engineering costs always underestimate the true social costs of a particular regulation

c. For a freely provided public good, a consumer’s willingness to pay for a small increase in the good or willingness to accept payment for a small decrease in the good will provide approximately the same value for the change in consumer surplus.

Answer 1

a) False.  

Non- excludable goods means goods are not being prevented to consumers for not paying for the goods.

Therefore, everyone are able to consume the goods. Suppose we take  sunlight for an example it is non-excludable goods. Therefore sunlight gives everyone a positive externality.

b) True.

The engineers projects typically have a higher level of uncertainty and Its very difficult to accurately estimate the    time required to do work when there is a high level of uncertainty associated with the work to be done.Therefore, they underestimate.

c) False.

When the good is a public good, which is non excludable and non -rival in consumption. Consumers act as a free rider. If they consume less for not paying the good. They will take it. But if for an good which is free, to consume more they are not willing to pay for that good.