📚 Learning Guide
Public Goods and Free Rider Problem
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Which of the following statements accurately describe the characteristics of public goods and the implications of the free rider problem? Select all that apply.

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Choose the Best Answer

A

Public goods are always provided by the government because private firms cannot profit from them.

B

The free rider problem can lead to underproduction of public goods in a free market.

C

Public goods are non-rivalrous, meaning one person's consumption does not reduce the amount available for others.

D

Individuals are incentivized to contribute to public goods because they can benefit from them without paying.

E

The free rider problem is primarily a concern for goods that are both excludable and rivalrous.

Understanding the Answer

Let's break down why this is correct

Answer

Public goods are items that everyone can use without reducing their availability to others, like clean air or national defense. This means that when one person benefits from a public good, it doesn't take away from anyone else's ability to enjoy it. However, the free rider problem occurs when individuals benefit from a public good without contributing to its cost, leading to underfunding or overuse of these goods. For example, if a community builds a park funded by taxes, some people might use the park without paying taxes, relying on others to cover the expenses. This situation can make it hard to maintain or create new public goods since not everyone is willing to pay their fair share.

Detailed Explanation

Other options are incorrect because This suggests only the government can provide public goods; This implies that free markets can't produce enough public goods.

Key Concepts

Public Goods
Free Rider Problem
Market Failure
Topic

Public Goods and Free Rider Problem

Difficulty

medium level question

Cognitive Level

understand

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