a. Goods can be grouped into four categories (i.e. public goods, private goods,

Question

a. Goods can be grouped into four categories (i.e. public goods, private goods, common resources and club goods) according to two characteristics: whether is it excludable or rival in consumption. State what category each good or service falls into. [NO EXPLANATION IS NECESSARY i. 14 points] Tornado siren ii. 14 points] The fish in the ocean ii. 14 points) Congested toll roads iv. I4 points] Cable TV b. There is a pasture in the town of Countyville, which is open to all residents. The residents use the pasture to graze their cattle. Over time, as the population grows, the number of cattle grows. The grass begins to disappear from overgrazing. i. 14 points] What type of good is the pasture? i. I5 points] State two policy options the government can use to prevent the overuse of the pasture

Explanation / Answer

A.
1.
Torando siren is public good. Since nobody pays for it and it is available for everyone, then it is non-excludable. It is also non-rivalrous in nature as siren, listen by one person does not cause other person not to listen it. Hence, it acts as a tornado good.
2.
It is a common resource good. It is non-excludable as nobody pays for it. But, it is rivalrous good because use of it by one person make in unavailable for other person over a period of time. Hence, consumption by one person makes it unavailable for another person as the resource deplete over a period of time.
3.
It is a private good due to its rivalrous as well as excludable nature. Since people pay and use the toll road, hence it is excludable. Since space used by one car, makes the space less available for another car and after few cars, no any other car or vehicle can be accommodated, then it is rivalrous in nature.
4.
Cable TV is club good and it is excludable and non-rivalrous in nature. Since the cable TV is paid, it is excludable. But, the cable TV viewed by one person does not affect the viewership for other people, it is non-rivalrous.

B.
1.
Pasture is the common resource good. It's non-excludable due to no price paid by anyone. But, it is rivalrous due to its consumption by one person makes it less available for other person.
2.
The first policy action is to put tax or duty upon the uses of the pasture so that people will deter from making an overuse of the pasture.
The second policy action is to distribute private ownership of the resource. It will encourage people to manage it properly and prevent its misuse.

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