CA Foundation P4 · Chapter 7 · Question 3 of 15
The 'free rider' problem means that:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) People can enjoy the benefits of a good without paying for it, so private markets under-provide it
Explanation
Because of non-excludability, individuals have an incentive to hide their true preferences and let others pay. As private firms cannot collect revenue from free riders, they under-supply such goods, which justifies government provision.
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