Asked by Laisha Franco on Jun 19, 2024
Verified
There are 1,000 families in a neighborhood that are affected by noise pollution from a local factory. The noise could be reduced if the company spent $5,000 on technological improvements. The company agrees to make these improvements if the affected families contribute the $5,000. However, because individuals will benefit from the reduction in noise whether they contribute or not, most people will not contribute and the firm will not make the improvements. This outcome is an example of the
A) free-rider problem.
B) drop-in-the-bucket problem.
C) Coase theorem.
D) collective action problem (that arises when there are too many parties involved) .
Free-Rider Problem
A situation in which individuals consume a resource or service without contributing to its cost, commonly occurring in the provision of public goods.
Noise Pollution
Unwanted or harmful outdoor sound created by human activities, such as transportation, industrial processes, and construction.
Technological Improvements
Innovations and advancements in technology that enhance productivity, efficiency, and capacity in production processes.
- Pinpoint and expound upon the failures in markets related to public goods, with a focus on the free-rider dilemma.
- Elucidate on the methodologies and difficulties encountered in the allocation of funds and provision of communal amenities or infrastructure.
- Elucidate the role of single contributions towards collaborative endeavors and their accompanying issues.
Verified Answer
NS
Navjot SandhuJun 20, 2024
Final Answer :
A
Explanation :
The free-rider problem occurs when individuals benefit from resources, goods, or services without paying for them, which leads to under-provision of those goods or services, as seen in the scenario where individuals benefit from noise reduction without contributing financially.
Learning Objectives
- Pinpoint and expound upon the failures in markets related to public goods, with a focus on the free-rider dilemma.
- Elucidate on the methodologies and difficulties encountered in the allocation of funds and provision of communal amenities or infrastructure.
- Elucidate the role of single contributions towards collaborative endeavors and their accompanying issues.