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Suppose the government chooses to provide a public good at a zero price, and the increased...

Suppose the government chooses to provide a public good at a zero price, and the increased consumption makes it so that one person’s use begins to interfere with others’ use. Think of a crowded road or a crowded park. What should the government do now to keep this market efficient?

A) Stop providing the good.

B) Close the goods to users at peak demand times.

C) Pay consumers to use the good.

D)Add prices that reflect the costs of an individual’s use of the good.

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Answer #1

Correct option is (D).

When higher consumption leads to rivalry and/or excludability in consumption of the good, the good does not remain a pure public good. In such a case, government may make usage efficient by charging a price equal to cost of use.

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