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Microeconomics

OK. So - you are elected President and you need to estimate the value of... let's say... Homeland Security. No one argues whether we need to protect our country from attack (no one rational anyway). So how can you attach a value to it? What are your ideas?

2) What is the problem with determining the value of a public good to society? This is how I answered this question.

The nature of public goods is such that it is difficult to determine a value for them. Because public goods are non-rival and non-excludable, the use of the market to determine the value of the product would lead to lead to an under-supply as individuals act to advance their personal interests.

The preservation of a rain forest is an example. If the value of preserving the rain forest is to be determined by the market, the relevant party interested in its preservation will not be able to restrict the benefits from the rain forest to only those willing to pay for it, which would discourage an interest in incurring the cost of preservation. This would result in an inability to determine the value of preservation and the eventual failure to preserve, unless an institution such as the government steps in.

The absence of the market removes the fundamental tools for the determination of value, the forces of demand and supply. Even the government will experience difficulties in determining the value of a public good (such as the rain forest) as its inability to restrict the benefit to only those who pay removes the platform for the efficient working of demand and supply.

I need your thoughts on this: So - someone is elected President and you need to estimate the value of... let's say... Homeland Security. No one argues whether we need to protect our country from attack (no one rational anyway). So how can you attach a value to it? What would some ideas be in regards to your thoughts?

Solution Preview

The benefits provided by Homeland Security are based on the preferences and beliefs of the consumers of the service, that is, the populace. The costs are based on the technology and the prices of the factors of production to produce the system. Just like private goods, the ...

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