AP Microeconomics : Public, private, and common goods Quiz

*Theme/Title: Public, private, and common goods
* Description/Instructions
Some goods like highways must be produced by the government since private individuals don't have the resources or the incentives to provide them. An interstate provides utility for anyone using it, but suffers from the "free rider" problem. So private individuals won't pave a highway from New York to Los Angeles because the cost is prohibitive and once built anyone can use it. In the case of a highway, the good is nonexcludable. The government must decide the socially optimal amount of a public good to provide by equating the marginal social benefit with the marginal social cost.

In order to provide goods such as military protection, the government can tax or subsidize the production of a good. A per-unit tax or subsidy means that for every unit a firm produces a tax or subsidy is imposed. When you buy a gallon of gas, 15 cents per gallon is added as a tax. This is an example of a per unit tax. The government uses this tax to maintain the roads. Taxes and subsidies can be "lump sum" as well. A lump sum tax acts like an increase in fixed costs and a lump sum subsidy acts like a decrease in fixed costs. Both a lump sum tax and subsidy changes the profit maximizing position.

Group: AP Microeconomics AP Microeconomics Quizzes
Topic: AP Microeconomics

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