Question

explain public goods and the free rider problem and provide examples

Answer 1

• Public good is a good that is used by all Individuals.
• It is a good that is used without reducing the availability of the good to others and cannot be restrained by people.
• The two features of public good are nonrivalry and nonexcludable.
• Where nonrival means use of goods by one consumer does not reduce the availability of the good to the other.
• Example, streetlights which does not reduce by others use.
• Nonexcludable goods are goods if consumers not pay for a particular good they are not prevented from using it.
• Example: public park.
• A public good is financed by tax revenues.
• Therefore public good must be available for everyone.
• Another example of a public good is a fresh air because all people benefit from its use without reducing the availability of its function.

Free rider problem:-

• This problem occurs when those who benefits from public goods or resources who do not pay for them.
• It is a concept of a failure in market who do not pay the resources gained by it.
• A free rider is an individual who gains from something without effort or paying for it.
• When there are too many riders, the goods or services are under provided.
• And thus creates a free rider problem
• Example dam,park etc.