a) Free rider problem

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7 Terms

1
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  • non-excludable


  • when a good/service is difficult to prevent non-payers from consuming


2
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  • non-rivalrous


  • when one person’s consumption of a good/service does not prevent another person’s consumption


3
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  • public good


  • a non-excludable and non-rivalrous good


4
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  • private good


  • an excludable and rivalrous good


5
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  • private goods can produce profit for firms because…


  • they are excludable

    • so consumers must pay to consume

  • they are rivalrous

    • so consumers are incentivised to consume to access the limited supply


6
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  • public goods do not produce profit for firms because of…


  • the free rider problem


7
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  • the free rider problem


  • consumers realise they can continue to consume the good without paying

  • paying consumers stop paying

  • firms stop producing