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3. Explain why the free-rider problem occurs for public goods but not for private goods.

3. Explain why the free-rider problem occurs for public goods but not for private goods.

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Answer #1

A free rider problem is a situation when a person is using a service but he is not paying for it. A free rider problem is possible for a public good because a public good in non-excludable and non-rivalrous. No one can be excluded from using a public good. For example, a road. If a person doesn't pay for the road he will still be using it.

This problem is not possible in private good because it is excludable. i.e. a person can be excluded from using that good if he is not paying for it. For example an ice cream. If a person doesn't pay for an ice cream he will not be getting the benefit of that good.

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