Final answer:
The free-rider problem occurs when individuals benefit from a public good without contributing to its funding. This can result in an inefficiently small quantity of the public good being provided.
Step-by-step explanation:
The free-rider problem refers to the situation when individuals have an incentive to let others pay for a public good and then benefit from it without contributing themselves. This can lead to an inefficiently small quantity of the public good being provided in the economy. For example, if many people act as free riders and refuse to contribute to the funding of a local park, the park may not be properly maintained or may not be established at all.em refers to situations where people benefit from a public good without paying for it, leading to an underprovision of that good. It is exemplified by the Prisoner's Dilemma in economic theory, illustrating a lack of incentives to contribute to the cost of public goods such as national defense or local fire services.
The free-rider problem occurs when individuals have the opportunity to benefit from a public good without contributing to its cost. This problem is prevalent because once a public good is provided, it is available to all, regardless of who paid for it. Private companies often struggle to produce public goods, such as national defense or a local fire department, because these goods are nonexcludable, meaning it's impossible or very expensive to prevent people who haven't paid for the good from using it.
In the context of the Prisoner's Dilemma, the free-rider problem illustrates why individuals might not contribute to a public good even when doing so would be beneficial for society. For example, if both Rachel and Samuel consider contributing to a public good where the social benefit is greater than the cost, they still might refrain from contributing, hoping the other will cover the cost, allowing them to 'free ride'. This results in a potential situation where the good might not be provided at all, as everyone waits for someone else to pay the bill.