Which of the following best explains why a religious organization not paying tax on religious items does not make those items a public good?

• A. Tax exemption makes a good both non-rival and non-excludable.
• B. Religious items are always non-rival and non-excludable.
• C. Any good that is exempt from taxes is automatically a public good.
• D. Public goods are defined by non-excludability and non-rivalry, not by tax status.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the definition of a public good. A public good is characterized by two main properties: non-excludability (no one can be prevented from using it) and non-rivalry (one person's use does not reduce availability to others).
2. Step 2: Analyze the role of tax exemption. Tax exemption means that the religious organization does not have to pay taxes on certain items, but this financial status does not affect the inherent characteristics of the goods themselves.
3. Step 3: Evaluate whether tax status changes the nature of the good. Since public goods are defined by their consumption properties (non-excludability and non-rivalry), tax exemption alone does not transform a good into a public good.
4. Step 4: Consider the properties of religious items. Religious items are typically excludable (only those who pay or belong to the religion can use them) and rivalrous (one person's use can limit another's), so they do not meet the criteria for public goods.
5. Step 5: Conclude that the correct explanation is that public goods are defined by their consumption characteristics, not by whether they are taxed or tax-exempt.