The efficient quantity of a public good can't be produced by private firms because
A) only the government has the necessary resources.
B) it is impossible to determine the efficient amount.
C) consumers have an incentive to free ride and not pay for their share of the good.
D) private firms aren't large enough.
E) the price would be too high if private firms produced the goods.

Question

Quizplus · Accepted Answer

This is known as the free rider problem. When a public good is produced, individuals have an incentive to not pay for it and instead rely on others to pay for it, while still receiving the benefits. This leads to underproduction of the public good by private firms. The government can solve this problem by providing the good and financing it through taxation.

The Efficient Quantity of a Public Good Can't Be Produced