What is the free-rider problem and how does it cause the underproduction of a public good in a competitive market?
Please provide the best answer for the statement.
The free-rider problem is the fact that once a public good is produced, anyone can enjoy it, even those who didn’t pay for its production. Since most people will not pay for something they can get for free, demand for the public good is not properly expressed. Without a clear indication of demand, it is difficult for potential firms to see the possibility to take advantage of the demand for a good and gain revenues and profits. Thus, a competitive market will not produce a public good on its own and the society will have to direct its government to produce the good.
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One way that government can encourage the production of goods or services that have external benefits is to subsidize the good or service
Indicate whether the statement is true or false
In a two-period model with production, a shock that shifts the output demand curve to the right, and does not shift the output supply curve
A) causes an increase in the current account surplus and an increase in real output. B) causes no change in the current account surplus and an increase in real output. C) causes a decrease in the current account surplus and no change in real output. D) causes a decrease in the current account surplus and an increase in real output.
Which of the following market structures is characterized by the absence of market power?
A. Oligopoly. B. Perfect competition. C. Monopoly. D. Monopolistic competition.
The change in the quantity of labor demanded resulting from a change in the quantity produced of the product is known as the ________ effect.
A. input-substitution B. price elasticity C. output D. derived demand