Question

In: Economics

Describe a situation where you experienced a positive or negative externality or free-riding by you or...

Describe a situation where you experienced a positive or negative externality or free-riding by you or someone else. Why are these situations problematic?

Solutions

Expert Solution

suppose government of a country provides grains through its public distribution schemes which provides grain at a cheaper price to the poor people.anyone having a valid identity proof can avail this service.

the main idea behind that is to promote the consumption of goods and mobilization of income and saving to investment.poor people would be be able to save more of their income and would invest it which would have positive impact on the economic activity and level of investment would increase and due to multiplier and accelerator impact the economy would witness the prosperity.

  • this would also decrease the burden from government to provide employment and government would be comparatively in benefit.furthermore the interest of lower income level group would be protected,
  • but now in practical scenario, the people who are having higher level also started availing this services by providing valid identity proof and now the government is incurring losses due to free rider problem.
  • there is a loss of social welfare because of limited supply the needy people are not able to get the benefit and this free rider problem has led to market failure.therefore free rider problem is a problem.

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