explain public goods and the free rider problem and provide examples

Expert Solution

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.

Rahul Sunny answered 2 years ago

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