Question

​_________ are public goods. If bureaucrats want to ensure the efficient quantity is​ produced, _______.

A. ​Cars; marginal cost must be equal to marginal benefit.

B. ​Life-saving drugs; marginal social benefit must be greater than marginal cost.

C. ​Highways; marginal social benefit must be equal to marginal social cost.

D. Factories; marginal social cost must be greater than marginal cost.

E. U.S.​ exports; marginal cost must be greater than marginal benefit.

Answer 1

Highways : Marginal social benefit must be equal to marginal social cost.

(* A pure public good is good which possess the characteristics of non rivalry in consumption and non excludability. Once a highway is built , everybody who owns a vehicle can use it. Usually use of highway by one doesn't prelude others from using it. But , its also possible to exclude people from consumption in the case of highway using troll. Therefore highway isn't a pure public good , it comes under the category of an impure public good.

However, among the options provided, only highway fits in the category of public good. Life saving drugs , factories and US exports don't fit in the category

* Efficient quantity is determined by the intersection of marginal social benefit curve and marginal social cost curve. This can be better understood with the help of the following diagram. MSB is the marginal social benefit curve and MSC is the marginal social cost curve. MSC curve intersects MSB curve at E. At this point, marginal social benefit = marginal social cost. Efficient quantity is Q .lts the optimal quantity from a Society's point of view.