Macroeconomics Case

Chapter 5 and 6 Questions

Orm Jenkins Jr

Grantham University

Chapter 5: Questions

#3 Well according to the text book (Macroeconomis, Private and Public Choice; Gwartney,Stroup Sobel and MacPherson) Public Good’s characteristics are nonrival in consumption and nonexcludable. For example a nonrivalry is like a radio broadcast signal that is directed to a particular demographic, but everyone is available to listen. In addition two people cannot purchase the same pair of shoes or other clothing items, because this makes one less pair that will be available for another customer to purchase. Nonexcludability means that it is impossible to exclude nonpaying customers from receiving the goods. For example if neighbors have homes within close proximity of each other, and one has motion activated lights on there home and someone is in the neighbor’s yard and the light is triggered then that person reaps the benefit of the lighting. Hence the neighbor is the nonpayer of the service via the electrical company. Public goods are difficult for the markets to allocate efficiently simply because the characteristics of nonexcludability. When people realize that they cannot be excluded they have little incentive to pay for the goods.

#12 In order for markets to achieve efficiency, a few conditions must be achieved: First: The market must be competitive. Competition among buyers and sellers is what creates equality between demand price and supply price. Second: The market must not have any benefits or costs external to the market. The demand price must reflect all value generated from a good and the supply prices must reflect all opportunity cost of foregone production.