Which of the following is the biggest drawback associated with the free rider problem?

• A. Government regulation always eliminates inefficiency in markets.
• B. Private goods become more expensive due to increased demand.
• C. Public goods may be underprovided because individuals have little incentive to pay for them.
• D. Monopolies are more likely to form in competitive markets.

Answer: (C)

Verified step by step guidance

1. Understand the free rider problem: It occurs when individuals can benefit from a good or service without paying for it, leading to underprovision of that good or service.
2. Recognize that the free rider problem is most commonly associated with public goods, which are non-excludable and non-rivalrous, meaning people cannot be easily excluded from using them and one person's use does not reduce availability to others.
3. Analyze each option in the context of the free rider problem: Government regulation does not always eliminate inefficiency, private goods are typically excludable so free riding is less of an issue, and monopolies forming in competitive markets is unrelated to free riding.
4. Identify that the biggest drawback of the free rider problem is that public goods may be underprovided because individuals have little incentive to pay for them, as they can benefit without contributing.
5. Conclude that the correct understanding is that the free rider problem leads to underprovision of public goods due to lack of payment incentives.