ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Principal-agent problem
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Free-rider problem
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Either A or B
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None of the above
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Detailed explanation-1: -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.
Detailed explanation-2: -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-3: -Public goods create a free rider problem because consumers are able to utilize public goods without paying for them.