Question:
Market failure arise in case of Public good due to
Market failure arise in case of Public good due to
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Public goods create market failure mainly because of the free rider problem. People can benefit without paying.
Updated On: May 22, 2026
- Over pricing
- Excludability
- Free Rider Problem
- Rivalry
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The Correct Option is C
Solution and Explanation
Concept: Public goods are goods that are non-rival and non-excludable. Examples include national defence, street lighting, public parks, and clean air.
Step 1: Understand non-rivalry and non-excludability.
Non-rivalry means one person's consumption does not reduce availability for others.
Non-excludability means people cannot easily be prevented from using the good. \[ \text{Public Good} = \text{Non-rival + Non-excludable} \]
Step 2: Understand the free rider problem.
Because public goods are non-excludable, people can enjoy the benefit without paying for them. \[ \text{Benefit without payment} = \text{Free rider problem} \]
Step 3: Link with market failure.
Private firms may not provide public goods efficiently because many people may refuse to pay while still enjoying the good. This causes market failure. Therefore, the correct answer is Free Rider Problem.
Step 1: Understand non-rivalry and non-excludability.
Non-rivalry means one person's consumption does not reduce availability for others.
Non-excludability means people cannot easily be prevented from using the good. \[ \text{Public Good} = \text{Non-rival + Non-excludable} \]
Step 2: Understand the free rider problem.
Because public goods are non-excludable, people can enjoy the benefit without paying for them. \[ \text{Benefit without payment} = \text{Free rider problem} \]
Step 3: Link with market failure.
Private firms may not provide public goods efficiently because many people may refuse to pay while still enjoying the good. This causes market failure. Therefore, the correct answer is Free Rider Problem.
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