When does the free-rider problem arise?
A) when someone who benefits from a good does not have to contribute to paying for it
B) when a firm does not have to advertise, because its customers recommend the product to their friends
C) when policymakers ignore opportunity costs in making decisions
D) when production of a good generates pollution

Question

Quizplus · Accepted Answer

The free-rider problem arises when someone benefits from a good or service without having to pay for it. This can happen in situations where the cost of exclusion is high or where it is difficult to determine who should pay for the good or service. For example, a national defense system benefits everyone in the country, but it is difficult to exclude anyone from its benefits or to determine how much each person should pay for it. As a result, some people may choose not to contribute to paying for it, even though they still benefit from its protection.

When Does the Free-Rider Problem Arise