ECON 356

In Class Exercise Sixteen - Public Goods

1.  Assume that several neighbors live on a road that is not paved.  They would all benefit if the road were paved.  Many consider the road a "public good" in the sense that it is not owned by any of the homeowners and therefore not any one of the neighbors can exclude anyone else from using the road (at least legally) and there are not enough neighbors using the road to make it a rival good.  Technically speaking it is actually a mixed public good at best.

    a.  Explain why it is not in the interest of any one of the neighbors to contribute to paving the road (hint:  you should have two reasons here). (6 pts.)

    b.  Explain two conditions or instances under which the road might end up being paved anyway (without government stepping in).  (4 pts.)

    c.  Explain why the number of neighbors would matter here (this might be an extension of your answer to b).  (3 pts.)

2.  Theoretically, how much of any public good should be produced if there is "allocative efficiency?"   (3 pts.)

3.  What are the two problems associated with government producing a public good.  Explain. (4 pts.)