If the free market is called upon to provide public goods, then:
A) there will more goods provided than is optimal.
B) there will be fewer goods provided than is optimal.
C) the market will provide the optimal number of goods.
D) the market price will be correct, but the optimal amount of output will not be produced.
E) the firms will earn excess profit.

Question

Quizplus · Accepted Answer

Public goods have non-excludable and non-rivalrous characteristics, meaning once they are provided, it is difficult to exclude anyone from using them and one person's use of the goods does not diminish its availability for others. This creates a free rider problem where individuals have an incentive to not pay for the goods but still use them. In a free market, firms will not have an incentive to provide public goods because they cannot charge individuals for their use, which means there will be under-provision of public goods. Therefore, the optimal amount of public goods will not be produced in a free market.

If the Free Market Is Called Upon to Provide Public