Unit 2.9 · Market Failure: Public Goods
Free Rider Problem
AO2
Syllabus Requirement
When individuals consume a good without paying for it, making it unprofitable for private firms to supply the good.
Assessment Objectives
AO2Application and Analysis
Summary
The free rider problem occurs when individuals can benefit from a public good without paying for it, leading to under-provision of such goods in a free market. This situation arises because public goods are non-excludable, meaning that it is impossible to prevent anyone from using them. As a result, private firms lack the incentive to supply these goods, often necessitating government provision.