📚 Learning Guide
Government Intervention and Market Efficiency
hard

How does government intervention address market failure in the case of public goods, and what role do taxes play in this process?

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Choose the Best Answer

A

Government provides public goods for free, eliminating the need for taxes.

B

Taxes are used to fund public goods, correcting market failure by ensuring these goods are available.

C

Market failure is resolved naturally through competition without government intervention.

D

Public goods are only provided by private entities, and taxes are irrelevant.

Understanding the Answer

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Answer

Government intervention addresses market failure in the case of public goods by ensuring that these goods are available to everyone, even if the market would not provide them on its own. Public goods, like clean air or national defense, are non-excludable and non-rivalrous, meaning that one person's use does not reduce availability for others. Because businesses may not find it profitable to provide these goods, the government steps in to supply them, ensuring that all members of society benefit. Taxes play a crucial role in this process by collecting funds from citizens, which the government then uses to produce or maintain public goods. For example, taxes collected from citizens can be used to build and maintain public parks, which everyone can enjoy without directly paying for each visit.

Detailed Explanation

Taxes help pay for public goods like parks and roads. Other options are incorrect because This idea suggests that public goods can be free without taxes; This option believes competition will solve all problems.

Key Concepts

Market failure
Public goods
Taxes
Topic

Government Intervention and Market Efficiency

Difficulty

hard level question

Cognitive Level

understand

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