Question

“Majority voting ensures that government will produce only those public goods for which benefits exceed costs.” Discuss.

Short answer

Majority voting sometimes leads to the production of goods whose overall benefits are less than the costs or rejection of goods whose overall benefits are more than the costs due to the majority supporting or rejecting the production of the goods, respectively.

Step-by-step solution

Meaning of majority voting 

Majority voting is a technique adopted by the government to know people's preference for the public good. In this, people vote in either “yes” or “no.”

People vote according to their self-interest so that their economic welfare can enhance, that is, a person will say yes to producing a good if the benefit received by him/her exceeds the amount he/she is paying as a cost of production.

Explanation for the statement

In practice, majority voting might not lead to an increase in the overall economic welfare. Hence, there is a possibility that a public good is wrongly accepted or rejected through majority voting. This can be explained using an example.

Suppose there are three people in the society, say A, B, and C, who have to decide if a particular public good should be produced or not. The taxes are used to fund the production. The government charges $200 as a tax from each person, so the total cost is $500. A’s benefits are $600, B’s are $150, and C’s are $100. The total benefit from producing the good is $850.

Here, the total benefit ($850) exceeds the total cost ($600), but two out of three people would say no to this public good as their own benefits are less than the cost they are paying. Hence, the overall economic welfare is not considered, and the production of the said public good will not happen.

Thus, the statement is false.