What is the main economic consequence of the free-rider problem in the provision of public goods?
Correct answer: C. Private markets may underprovide them
- A. Private markets tend to overproduce them
- B. Consumers tend to pay more than their benefit
- C. Private markets may underprovide them
- D. Government revenue automatically increases
Explanation
A free rider enjoys the benefits of a public good without paying for it. Because people have an incentive to conceal their willingness to pay, private suppliers may receive insufficient revenue and provide too little of the good.
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About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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