Final answer:
Private firms will under-produce a public good due to non-excludability and over-utilize a common good because it's rival but non-excludable, leading to excessive consumption before depletion. The correct answer is option c.
Step-by-step explanation:
When discussing goods in an economic context, we differentiate between public goods and common goods based on their characteristics of excludability and rivalry. A public good is defined by non-excludability and non-rivalry, meaning one person's consumption of the good does not reduce its availability to others, and it's not possible to prevent people who have not paid for it from having access to it. National defense is a classic example. Private firms find it challenging to produce public goods because they cannot easily exclude non-payers, making it tough to profit from these goods.
On the other hand, a common good is usually rival but non-excludable. Resources like fisheries or timber from public lands are common goods because one person's use diminishes what's available for others, but it is difficult to exclude people from accessing them. This often leads to over-utilization or overuse, as each individual has an incentive to use as much of the resource as possible before it's depleted — a phenomenon known as the tragedy of the commons.
Therefore, private firms will likely under-produce public goods due to the difficulty in obtaining a return on investment, while they will tend to over-utilize common goods, since there is little to prevent excessive consumption. This leads to the correct answer being: C) private firms will under-produce the former and over-utilize the latter.