What is the free-rider problem, and how is it related to public ...

[cdr_15]

What is the free-rider problem, and how is it related to public goods?
 
  What will be an ideal response?

Question 2

An unregulated natural monopolist will produce the quantity at which
 
  A) average total costs are minimized.
  B) marginal cost equals marginal revenue.
  C) marginal cost equals the long run average cost curve.
  D) the long-run average cost curve intersects the demand curve.

[mcarey591]

Answer to Question 1

The free-rider problem arises from the exclusion principle. Since no one can be excluded from the benefits of a public good, even if they don't contribute towards paying for the good, people have an incentive to let other people pay for the good and to not contribute themselves. If everyone free rides, the good will not get produced. Hence, public goods usually are provided by the government and paid for by taxes.

Answer to Question 2

B