Question 2: a) Define a private resource, common resource, and public resource,

ID: 1124865 • Letter: Q

Question

Question 2:

a) Define a private resource, common resource, and public resource, explain your definitions and provide one example of each.

b) What problem prevents the efficient provision and management of a common resource by private unregulated markets?

c) What problem prevents the efficient provision and management of a private good or service by private unregulated markets?

d) What is the obstacle to the efficient production by free markets of goods and services like national defense?

e) List one consequence of (b), (c), and (d) above and its possible solution.

A) Private resource: Goods which are both rival and excludable in nature. Eg buying a pen

Common resource: Goods which are rival but non excludable in nature. Eg parks

Public goods: Goods which are non rival and non excludable in nature. Eg air

B) Overusage of the good by people since they do not have to pay for it, leading to its overuse and thus degradation

C) High prices charged by private producers reduces output to less than efficient level, leading to underuse or underutilization of resource

D) Free riding by people, who want to enjoy all services but do not want to pay for it

E) Consequences:

Over utilisation ; tax the users

Underutilization ; subsidize the producers

Free riding ; subsidize the providers

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