Question

Q1 (using graph(s) and words )Use the economic theories to determine whether the statement in each of the following question is True, False or Uncertain. Please explain using both words and graph(s) and make it concise. Your answer should be around ¾ to 1 page for the question.

Consider a dam which provides drinking water for a local community and which allows free access to all. As a public good the only way to manage this resource is through government regulation so that overuse does not occur.

Answer 1

The statement is True.

Since a dam is a public good which provides free access to all, thus the nature of the good is non-rival and non-excludable in characteristic in nature. In order to prevent overuse of the good and use the good efficiently, government regulation is needed because in case of no regulation the good will be overused and this will lead to exploitation of the good. Thus, in case of public good government regulation is needed to prevent overuse.