Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It encourages efficient allocation of resources by firms.
B
It leads to underproduction of public goods due to lack of funding.
C
It ensures that all individuals contribute fairly to public goods.
D
It reduces competition among private firms for public goods.
Understanding the Answer
Let's break down why this is correct
Answer
The free rider problem occurs when people can benefit from a good or service without paying for it, which is common with public goods like clean air or national defense. Because these goods are available to everyone, individuals may choose not to contribute to their funding, hoping others will pay instead. This leads to underfunding or even a complete lack of provision for the public good, as there’s little incentive for anyone to contribute if they can still enjoy the benefits. For example, if a community wants to build a park but many residents decide not to donate money, the park might not get built at all, leaving everyone without that space to enjoy. Therefore, the free rider problem makes it challenging to ensure that public goods are provided and maintained in a market economy.
Detailed Explanation
The free rider problem means some people benefit from public goods without paying for them. Other options are incorrect because Some might think that free riders help firms use resources better; It's a common belief that everyone pays fairly for public goods.
Key Concepts
Public Goods
Free Rider Problem
Market Failure
Topic
Public Goods and Free Rider Problem
Difficulty
hard level question
Cognitive Level
understand
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