CA Foundation · Business Economics · Public Finance
Which of the following best illustrates the 'free rider' problem in the provision of a public good?
The free rider problem occurs when people consume a non-excludable good without paying for it, as residents do when enjoying a street light funded by others. Because payment cannot be enforced, private markets under-supply such goods, which justifies government provision.
- AResidents of a locality benefit from a privately funded street light without contributing to its costCorrect
- BA firm pays a tax to the government on its profits
- CA government subsidises fertiliser for farmers
- DA monopolist charges a high price for its product
Explanation
Free riding arises when people enjoy a good's benefits without paying because they cannot be excluded. The street light example fits this. Tax payment and subsidies are fiscal instruments, and monopoly pricing is a market power issue, not free riding.
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