Question

Government intervention is always required to correct the market failure associated with public goods. True or false? Explain and justify your answer.

Answer 1

This statement is correct

There is a market failure associated with the private provision of public goods in the sense that private sector will always under supply the public good. This is because public goods are considered to be non rival and non excludable in nature. This implies that you cannot exclude an individual from using public good and exclusion will not result in decline in the amount of public good available for others. These conditions indicate that private supplier cannot tag a price on public good to be used by each individual and therefore it will always be under supplied. Government has to intervene in the market and to make provision because only it can be the cost of providing public good.