When a free-rider problem exists,Group of answer choicesthe market will devote too few resources to the production of the good.the cost of the good will always be more than the benefit of the good.the good will not be produced.entrepreneurs will eventually find a way to make free-riders pay their share.
Question
When a free-rider problem exists,Group of answer choicesthe market will devote too few resources to the production of the good.the cost of the good will always be more than the benefit of the good.the good will not be produced.entrepreneurs will eventually find a way to make free-riders pay their share.
Solution
When a free-rider problem exists, the market will devote too few resources to the production of the good.
Here's why:
The free-rider problem is a type of market failure that occurs when those who benefit from resources, goods, or services do not pay for them, which results in an underproduction of those goods or services.
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If a good or service is non-excludable, meaning that it is impossible or very costly to prevent someone from using the good or service even if they didn't pay for it, people may choose not to pay for it and instead take a "free ride" on the efforts of others.
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This leads to under-provision of the good or service. Since producers cannot force consumers to pay for the good or service, they may not be able to cover their costs and may choose to produce less of the good or service, or not produce it at all.
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As a result, the market will devote too few resources to the production of the good or service.
The other options are not necessarily true. The cost of the good will not always be more than the benefit of the good - this depends on various factors such as the cost of production and the perceived benefit of the good. The good will not necessarily not be produced - it may just be underproduced. And while entrepreneurs may try to find ways to make free-riders pay their share, this is not always possible, especially for goods or services that are non-excludable.
Similar Questions
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