Question

question 38
it is difficult for a private market to provide the economically efficient quantity of a public good because
○ individual preferences are not revealed in the market for the good.
○ public goods produce positive and negative externalities.
○ by law governments cannot use cost - benefit analysis to determine this quantity.
○ it is too expensive to produce the necessary amount of the good.

question 39
the basic cause of deadweight losses from the existence of common resources and externalities is
○ a lack of clearly defined and enforceable property rights.
○ the self - interested rationality of human beings.
○ the absence of government intervention.
○ the use of a market system to deal with scarcity.

Explanation:

Question 38

• For the first option: Public goods are non - excludable and non - rivalrous. In a private market, individuals have an incentive to free - ride (consume the good without paying for it), so they do not reveal their true preferences for the public good. This makes it hard for the private market to determine the economically efficient quantity.
• For the second option: Public goods mainly have positive externalities (e.g., national defense benefits everyone), and the idea of them having both positive and negative externalities is not the main reason private markets can't provide the efficient quantity of public goods.
• For the third option: Governments can use cost - benefit analysis to determine the quantity of public goods, so this is incorrect.
• For the fourth option: The problem is not about the cost of production but about the free - riding problem and non - revelation of preferences, so this is incorrect.

• For the first option: Common resources are non - excludable but rivalrous, and externalities occur when the cost or benefit of a transaction affects a third party. A lack of clearly defined and enforceable property rights leads to overuse of common resources (tragedy of the commons) and unaccounted external costs or benefits, which cause deadweight losses.
• For the second option: Self - interested rationality alone is not the basic cause. With well - defined property rights, self - interested behavior can lead to efficient outcomes (e.g., in a market with private property).
• For the third option: Government intervention is a possible solution, not the cause of deadweight losses from common resources and externalities.
• For the fourth option: Using a market system to deal with scarcity is not the cause of deadweight losses in the case of common resources and externalities. In fact, markets work well with private property rights.

Answer:

A. individual preferences are not revealed in the market for the good.

Question 39