Which of the following best explains why government agencies are often responsible for managing public goods on behalf of the people?

• A. Because public goods are always profitable for private firms to supply.
• B. Because public goods can be easily divided and sold to individual consumers.
• C. Because public goods have a downward-sloping individual demand curve.
• D. Because public goods are non-excludable and non-rivalrous, private markets may fail to provide them efficiently.

Answer: (D)

Verified step by step guidance

1. Understand the definition of public goods: 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. Recognize the implications of non-excludability: Since individuals cannot be excluded from using the good, private firms find it difficult to charge consumers directly, leading to a free-rider problem.
3. Consider the non-rivalrous nature: Because one person's consumption does not diminish another's, there is little incentive for private firms to limit supply or exclude non-payers, reducing profitability.
4. Analyze why private markets may fail: Due to these characteristics, private firms may underprovide or not provide public goods at all, as they cannot easily capture revenue to cover costs.
5. Conclude why government intervention is necessary: Government agencies manage public goods to ensure efficient provision and maintenance on behalf of the people, overcoming market failures associated with public goods.