Why do governments provide certain goods and services in market economies?

• A. Because these goods are non-excludable and non-rivalrous, leading to underprovision by private markets
• B. Because consumers prefer government-provided goods over private goods
• C. Because private firms always charge higher prices than the government
• D. Because all goods and services are public goods

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of public goods in microeconomics. Public goods are characterized by being non-excludable (people cannot be prevented from using them) and non-rivalrous (one person's use does not reduce availability to others).
2. Step 2: Recognize why private markets may underprovide these goods. Since firms cannot easily exclude non-payers, they have little incentive to produce these goods at an efficient level, leading to market failure.
3. Step 3: Identify the role of government in providing these goods. Governments step in to supply public goods to ensure that they are available to everyone, overcoming the free-rider problem inherent in private provision.
4. Step 4: Evaluate the incorrect options. For example, the idea that consumers prefer government-provided goods or that private firms always charge higher prices is not generally true and does not explain the fundamental economic rationale.
5. Step 5: Conclude that the correct reason governments provide certain goods and services is because these goods are non-excludable and non-rivalrous, which leads to underprovision by private markets.