SOLUTIONS
University of Victoria
Economics 325
Public Economics
Martin Farnham
Problem Set #2
Note: Answer each question as clearly and concisely as
... [Show More] possible. Use of diagrams, where
appropriate, is strongly encouraged. Problem sets are ungraded. However, developing a
careful understanding of the problems will, on average, dramatically improve your exam
performance.
True/False/Uncertain
For each question, state clearly whether you find the statement to be true, false, or
uncertain. Then provide a clear explanation. Answers without explanation will be given
zero points.
1) Hockey is a public good.
Uncertain. It’s not a pure public good. If we’re talking about attendance of a hockey
game, then the good is clearly excludable (you need a ticket to get in) and it’s rival to the
extent that once the seats are full, one person’s presence excludes another from viewing.
Hockey on television is less excludable and is entirely non-rival. So arguably it’s more of
a public good. Excludability is the issue here. If it’s shown on free TV (as opposed to
cable), then anyone can watch it. But can people watch it without paying? Depends how
you view advertising. In order to watch a hockey game on TV, you’re basically forced to
watch advertising (you have to engage in costly activities to avoid the ads). This can be
viewed as a form of admission fee, which implies excludability. So it’s certainly not a
pure public good, but it’s also not a pure private good. Hence it’s likely to be
underprovided (as some are now sorely aware). This could be used as justification for
government intervention in the current labour dispute.
2) The free-rider problem tends to get worse as the number of beneficiaries from a public
good rises.
True. The free-rider problem arises when you believe someone else will provide the good
for you. The more people there are to provide the good for you, the more you can rely on
those other sources of provision. Also, the more people there are, the more the gap is
between one person’s personal valuation of an extra unit of the good, and societies
marginal valuation of the good. Free-riding on things like doing the dishes is much less
likely to be a problem when you have one roommate, than when you have ten. [Show Less]