Which of the following exemplifies the free-rider problem for interest groups?

• A. A company overuses a shared resource, leading to its depletion for everyone.
• B. A government imposes a tax on all citizens to fund public goods.
• C. Individuals benefit from a lobbying group's efforts to pass environmental regulations without contributing to the group's funding or activities.
• D. Consumers pay higher prices due to a monopoly in the market.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of the free-rider problem. In microeconomics, the free-rider problem occurs when individuals benefit from resources, goods, or services without paying for them or contributing to their provision, leading to under-provision or depletion of those goods.
2. Step 2: Identify the nature of interest groups. Interest groups often provide collective goods or benefits, such as lobbying for regulations or policies, which are non-excludable and non-rivalrous for their members and sometimes for non-members as well.
3. Step 3: Analyze each option to see if it fits the free-rider problem definition. The key is to find a situation where individuals benefit from a collective effort without contributing to it.
4. Step 4: Recognize that the example where individuals benefit from a lobbying group's efforts without contributing to the group's funding or activities perfectly illustrates the free-rider problem, because these individuals enjoy the benefits without bearing any cost.
5. Step 5: Contrast this with other options: overusing a shared resource is a tragedy of the commons, government taxation for public goods is a funding mechanism, and consumers paying higher prices due to monopoly is a market power issue, none of which directly represent the free-rider problem in interest groups.