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FREE-RIDER PROBLEM-Explain the free-rider problem-How public provision can help to overcome that problem
DEFINITION Public good is both nonrival and
nonexcludable. A public good benefits everyone, and no one can be excluded from its benefits
When fireworks are displayed in a public location, it's considered as a public good since everyone can see it for free
DEFINITION A free rider is a person who enjoys the
benefits of a good or service without paying for it.
DEFINITION Marginal social benefit is the sum of the
marginal benefits of all the individuals at each quantity.
Marginal social cost is the sum of the marginal costs of all individuals at each quantity
FREE RIDER PROBLEM A free rider problem is a situation in which
individuals or businesses are receiving benefits without actually contributing anything, thus creating an unfair balance in the distribution of revenues or other resources
- Non -production - Under – production - Excessive
FREE RIDER PROBLEM The free rider problem is that the
economy would provide an inefficiently small quantity of a public good
Marginal social benefit from the public good would exceed its marginal social cost
Resources can be used more efficiently by increasing a number of goods
2. Appealing To People’s Altruism For services which
have relatively low cost, asking for donations to raise funds
3. Make A Public Goods private A beautiful garden could
be seen as a public good. However, if you erect a high barrier and limit entrance to those willing to pay, it loses its feature as a public good and becomes a private good.