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Macro Assignment

This document is an assignment on public economics submitted by Sobuj Alom to their professor Farah Ishaq. It addresses the question of why public goods cannot be provided through voluntary contribution and how this leads to the free rider problem. The answer explains that public goods are non-excludable and non-rival, meaning their benefits cannot be withheld from anyone and their use by one person does not reduce availability to others. As a result, if public goods are not mandated and funded through taxes, individuals have no incentive to voluntarily contribute as they can still enjoy the benefits without paying. This is known as the free rider problem.

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Islam Máník
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75 views5 pages

Macro Assignment

This document is an assignment on public economics submitted by Sobuj Alom to their professor Farah Ishaq. It addresses the question of why public goods cannot be provided through voluntary contribution and how this leads to the free rider problem. The answer explains that public goods are non-excludable and non-rival, meaning their benefits cannot be withheld from anyone and their use by one person does not reduce availability to others. As a result, if public goods are not mandated and funded through taxes, individuals have no incentive to voluntarily contribute as they can still enjoy the benefits without paying. This is known as the free rider problem.

Uploaded by

Islam Máník
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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AN ASSIGNMENT

ON
PUBLIC ECONOMICS
HE-204: Public Economics

Submitted To,

Farah Ishaq

Assistant Professor

Institute of Health Economics

University of Dhaka

Submitted By,

Sobuj Alom

ID: 17

Session: 2018-2019

2nd Year, 3rd Semester


Question: Why public good cannot be provided through voluntary
contribution and how does it lead to free rider problem?

Answer to the question:

Public good is a good that is both non-excludable and non-rivalry .Non-rival

consumption refers to cases in which one persons consumption does not detract

from or prevent another persons consumption. It cost nothing for an additional

individual to enjoy their benefits; formally, there is zero marginal cost for the

additional individuals enjoying the good. Non-excludable means it is impossible

to exclude individual from the enjoyment of the good. Everyone has to access to

use them, and their uses do not deplete their availability for future uses that

cannot exclude a certain person from using such goods. Charging a price for a

non rival good prevents some people from consuming the good, even though

their consumption of the good would have no marginal cost. Thus, charging for a

non rival good is in efficient because its result in under consumption .The

marginal benefit is positive, the marginal cost is zero. But if there is no charge for

a non rival good, there will be no incentive for supplying the good. In this case,

inefficiency takes the form under supply. An example of a public good is national

defense. There is zero marginal cost for the additional individual enjoying the

good .It cost no more to defend a country of one million .If our national defense

policy is successful in diverting attack from abroad ,everyone benefits ;there is no

way to exclude any single individual from these benefits. Free riders problem

occurs when people get benefit from a good or service without paying for it
Now I will draw a figure of free rider problem for public goods.

Price

M
MC
B

M
M

Quantity
0 B B

1 2
Q
Figure: Free rider problem for Public good

We can see the figure vertical axis indicates price of public goods and

horizontal axis indicates quantity of public goods. We can give an example of

free rider problem for public goods which is a dam the government made in

flooded area to protect people. Here everyone gets security. The MB2

indicates that the person who is directed benefits from the dam and he stays

near to river. So he needs dam that’s why he can pay building for dam. On

the other hand, MB1 who stays far from the river and gets benefit but not need

emergency. So he doesn’t want to pay he knows govt. or who needs more


built the dam. It makes free rider problem. And that’s why govt. builds the dam

and solve free rider problem.

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