Which of the following factors weakens the case for government provision of goods and services relative to private-sector provision? Select one: a. monopoly b. externalities c. public goods d. the special-interest effect
The correct answer and explanation is:
The correct answer is d. the special-interest effect.
The special-interest effect refers to the phenomenon where a small group of individuals or organizations benefits from a policy or government decision, often at the expense of the general public. This effect can distort the allocation of resources, making it less efficient for the government to provide goods and services compared to the private sector. When small, well-organized interest groups influence government decisions, they may push for policies that benefit them disproportionately, leading to inefficiencies. These policies may result in over-provision or misallocation of resources, as the government caters to the interests of a narrow group rather than maximizing the welfare of society as a whole.
In contrast, the private sector generally faces market competition, which incentivizes efficiency. Companies are driven to provide goods and services at the lowest possible cost and in the most effective manner to attract customers. The special-interest effect, however, is less of an issue in the private sector, since businesses are motivated by profit and are subject to market forces that limit the influence of small interest groups.
Monopoly (option a) can actually support the case for government provision of goods and services, as government intervention can break up monopolies to ensure more competitive markets. Externalities (option b), such as pollution, often justify government intervention because the private sector may fail to account for societal costs. Public goods (option c) also strengthen the case for government provision, as these goods are non-excludable and non-rivalrous, meaning the private sector may underprovide them due to the free-rider problem. However, the special-interest effect weakens the case for government intervention by creating inefficiencies and favoring specific groups over the public interest.