Private supply of public goods is most likely to result in

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BlackTom AI · Accepted Answer

We start by restating the question and the available choices to frame the scenario.
Question: Private supply of public goods is most likely to result in
Options:
- an overuse of these goods
- less than the efficient level of output, due to the problem of insufficient competition
- more than the efficient level of output, due to the existence of externalities
- more than the efficient level of output, due to lower costs of private firms
- less than the efficient level of output, due to the free-rider problem

Option 1: an overuse of these goods. In public goods cases, private provision tends not to lead to overuse; the problem is under-provision because individuals cannot be excluded from consumption, so free riding reduces incentives to supply. This makes overuse an unlikely outcome in this context.

Option 2: less than the efficient level of output, due to the problem of insufficient competition. While competition can influence efficiency, the classic inefficiency in private provision of public goods stems from the free-rider problem rather than purely from competition levels. Insufficient competition is not the primary mechanism here, so this explanation is incomplete.

Option 3: more than the efficient level of output, due to the existence of externalities. Externalities can lead to misallocation, but for private provision of public goods, the characteristic problem is under-provision due to free riders rather than over-provision driven by externalities. This option misattributes the direction of misallocation.

Option 4: more than the efficient level of output, due to lower costs of private firms. If private firms could supply more at lower costs, one might expect more efficient or cheaper production, but the public-good context typically suffers from under-provision because individuals cannot be charged for usage and thus under-contribute. This option describes a scenario inconsistent with standard public goods dynamics.

Option 5: less than the efficient level of output, due to the free-rider problem. This matches the core economic insight: public goods are non-excludable and non-rivalrous, so individuals have an incentive to ride on the contributions of others, leading private provision to fall short of the socially optimal quantity. The free-rider problem directly explains under-provision in private markets for public goods.

Putting the pieces together, the most accurate characterization among the options is that private provision tends to yield less than the efficient level of output because of free riding. The other choices either misstate the Direction of the misallocation or attribute the effect to factors (like competition level or firm costs) that do not capture the central logic of public goods provision within a private-market setting.

AP Economics-Hillebrand AP Microeconomics Sem 1 Exam 2025 - Requires Respondus LockDown Browser

Private supply of public goods is most likely to result in

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