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Economics A Level

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Question:

What is the Free Rider Problem? Why is this a Problem for the Price Mechanism and the Free Market? -Who will have to Intervene?

Author: go kys



Answer:

-When the Public Good is Dished out, it is Impossible, due to its Non-Excludable trait, to stop People from Benefitting from the Good, even if they did Naught -Consumers therefore won't Pay for a Public Good that they can get for Free because other Consumers have paid for it -If People decide to Wait for someone to Provide and Pay for the Public Good Provision, then Nothing will Happen -Making a Price for the Public Good is Hard, as Consumers, to get a Low Price, will Undervalue, and Firms will Overvalue [High Price] -Overall, this means the Government must Intervene to Provide


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go kys
go kys