ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A public good has a classic free-rider problem because public goods have two characteristics: Non-excludability – you can’t stop anyone from consuming good. Non-rivalry – benefiting from good or service does not reduce the amount available to others.

Detailed explanation-2: -The cause of the free rider problem stems from the fact that public goods are non-excludable and non-rival. Non-excludable means you and everyone else enjoy the public good as a common resource without exclusion. Non-rival consumption means you don’t have to compete with one another to enjoy the service.

Detailed explanation-3: -The free rider problem occurs when people who benefit from a good use it and avoid paying for it. The free rider problem will occur mainly for goods that are non-excludable. Non-excludable goods mean that there is no way for people to be excluded from obtaining or using a good or service.

Detailed explanation-4: -Externalities pose fundamental economic policy problems when individuals, households, and firms do not internalize the indirect costs of or the benefits from their economic transactions. The resulting wedges between social and private costs or returns lead to inefficient market outcomes.

Detailed explanation-5: -In the social sciences, the free-rider problem is a type of market failure that occurs when those who benefit from resources, public goods and common pool resources do not pay for them or under-pay. Examples of such goods are public roads or public libraries or services or other goods of a communal nature.