The Free-Rider Problem

question 313

Multiple Choice

The free-rider problem

• A)forces the supply of a public good to exceed its demand.
• B)results in common resources becoming club goods.
• C)explains why many local governments supply public goods.
• D)results in public goods becoming private goods.

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Definitions:

Fixed Cost

Costs that remain constant regardless of the amount of goods produced or sold, including rent, wages, and insurance premiums.

Sunk Cost

Costs that have already been incurred and cannot be recovered or refunded, and should not influence future business decisions.

Average Fixed Cost

The cost incurred for fixed inputs (rent, salaries) divided by the quantity of output produced, which decreases as production increases.

Variable Cost

Costs that vary directly with the level of production or output, such as materials and labor, in contrast to fixed costs.