Markets tend to be inefficient when it comes to public goods because:
A) the government tends to overproduce the good.
B) free riders lead to an underproduction of the good.
C) the rival nature of the good makes it hard to collect payment from consumers.
D) consumers tend to value these goods less than private goods.

Question

Quizplus · Accepted Answer

Public goods are those goods that are non-excludable and non-rivalrous. Non-excludability creates the problem of free riders who can consume the good without paying for it, thereby leading to an underproduction of the good in the market. As there is no incentive for consumers to pay for the good, private firms tend to underproduce the good as they cannot make profits by producing it. Therefore, markets tend to be inefficient in allocating public goods.

Markets Tend to Be Inefficient When It Comes to Public