The Free Rider Problem Refers to a Situation in Which

question 205

Multiple Choice

The free rider problem refers to a situation in which

• A)people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay.
• B)the marginal cost of allowing additional consumers to consume a public good is zero.
• C)high income individuals subsidize the production of goods, such as education, that make society better off.
• D)markets fail to allocate resources efficiently when benefits outweigh costs.

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Definitions:

Pareto Optimal

An allocation of resources from which it is impossible to reallocate to make any one individual better off without making at least one individual worse off.

Utility Function

A mathematical representation used in economics to model the satisfaction or happiness a consumer derives from consuming goods and services.

Edgeworth Box

A diagram used in microeconomics to show the distribution of resources and the optimality of trade-offs between two agents in an economy.

Pareto Efficient

A condition where resources are distributed in such a manner that improving the situation of one person necessitates the detriment of another.