Economists are often concerned with the free-rider problem
a. What is meant by free riding? Explain with an example.
b. Are public parks subject to the free-rider problem? What about keeping city streets clean? Explain your answer.
a. A free rider is a person who receives the benefit of a good but avoids paying for it. People tend to pursue their own private interests and usually don't contribute voluntarily to the public interest. For example, watching a pirated copy of a movie is cheaper than buying one. Those who watch the pirated version are essentially free riders because there are others who buy the movie or pay for movie tickets. If everyone watched pirated copies, making movies would not be profitable and the industry would not function.
b. Cleaning of city streets may be subject to free riding. Suppose the streets are cleaned every day at a fixed cost. This cost is borne by those who pay taxes to the city government. However, they cannot prevent others who do not pay taxes from using the clean streets. This leads to the free rider problem. Public parks, however, can avoid the free rider problem by setting an entrance fee. This means that only those who pay toward the maintenance and upkeep of the park will be able to use it.
You might also like to view...
Which of the following was not a factor contributing to the debt crisis in Latin America?
(a) The oil shocks. (b) Trade liberalization in many developing countries. (c) An increase in global interest rates. (d) A lack of investment opportunities in the developed countries. (e) All of the above.
To help developing countries expand their industrial base, some industrial countries have reduced tariffs on designated manufactured imports from developing countries below the levels applied to imports from industrial countries
This policy is called A) export-led growth. B) generalized system of preferences. C) Most Favored Nation. D) reciprocal trade agreement. E) outsourcing.