On the Fourth of July, there is no fireworks display in the small town of Yankeeville, even though it would be efficient for such a display to be produced. Which of the following statements is correct?
A)The lack of a fireworks display in Yankeeville arises because of an externality.
B)The lack of a fireworks display in Yankeeville arises because the free-rider problem does not apply to goods such as fireworks displays.
C)In deciding not to produce a fireworks display in Yankeeville, private individuals and private firms made decisions that were privately irrational.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The lack of a fireworks display is due to an externality, specifically the free-rider problem, where individuals can benefit from the fireworks without paying, leading to underproduction.

On the Fourth of July, There Is No Fireworks Display