Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Individuals avoid contributing because they can benefit without paying.
B
The government sets the price too high.
C
The goods are too expensive to produce.
D
There is a lack of demand for the good.
Understanding the Answer
Let's break down why this is correct
Answer
The free rider problem occurs when people can benefit from a good without paying for it, leading to underproduction of that good. This happens because individuals may choose not to contribute, hoping others will pay for it instead. As a result, there are not enough funds or incentives for producers to create the good, even though it would benefit everyone. For example, consider a public park; if people think they can enjoy the park without contributing to its maintenance, fewer donations will come in, and the park may fall into disrepair. Thus, the underlying cause of this inefficiency is that people rely on others to pay, which discourages investment in the good.
Detailed Explanation
People don't pay for public goods because they can use them for free. Other options are incorrect because Some might think the price is too high; It's a common mistake to think production costs are too high.
Key Concepts
Public Goods
Free Rider Problem
Inefficient Market Allocation
Topic
Public Goods and Free Rider Problem
Difficulty
medium level question
Cognitive Level
understand
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