Which of the following situations would give rise to the free-rider problem?

• A. A restaurant offers meals only to paying customers.
• B. A farmer charges admission to enter his private apple orchard.
• C. A city provides public fireworks displays that anyone can watch without paying.
• D. A company restricts access to its paid online streaming service.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of the free-rider problem. It occurs when individuals can benefit from a good or service without paying for it, typically in the case of public goods that are non-excludable and non-rivalrous.
2. Step 2: Analyze each option to determine if the good or service is excludable (can people be prevented from using it if they don't pay?) and rivalrous (does one person's use reduce availability for others?).
3. Step 3: For the restaurant offering meals only to paying customers, the service is excludable because non-payers are prevented from eating, so no free-rider problem arises here.
4. Step 4: For the farmer charging admission to a private orchard, the orchard is excludable and likely rivalrous, so again, no free-rider problem exists.
5. Step 5: For the city providing public fireworks displays that anyone can watch without paying, the display is non-excludable (anyone can watch) and non-rivalrous (one person watching doesn't reduce others' enjoyment), which creates the free-rider problem.