In the case of a good that has no exclusion and no rivalry,private markets fail because
A) of free-ridership.
B) this is a natural monopoly.
C) profit is driven down to zero.
D) the quantity produced will exceed the social optimum.

Question

Quizplus · Accepted Answer

In the absence of exclusion and rivalry, individuals have an incentive to free-ride, which means they will consume the good without paying for it. This leads to an underproduction of the good in the private market, making it a market failure. Therefore, A is the correct answer. Choice B is incorrect because natural monopolies arise because of high fixed costs and economies of scale, not because of non-exclusion and non-rivalry. Choice C is incorrect because zero profits might happen in a competitive market, but it is not the reason why private markets fail in the provision of public goods. Choice D is incorrect because excess production is not a common problem in the provision of public goods.

In the Case of a Good That Has No Exclusion