Texas is often characterized as a 'low tax, low social service' state. This is a consequence of:

• A. the efficient allocation of resources through competitive markets
• B. the presence of positive externalities in private markets
• C. the free rider problem associated with public goods
• D. the law of diminishing marginal utility

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the context of the problem, which relates to why Texas is described as a 'low tax, low social service' state. This involves identifying the economic concept that explains limited public services despite potential demand.
2. Step 2: Recall the definition of a public good: a good that is non-excludable and non-rivalrous, meaning people cannot be prevented from using it and one person's use does not reduce availability to others.
3. Step 3: Recognize the 'free rider problem,' which occurs when individuals benefit from a public good without paying for it, leading to under-provision of that good by the market or government.
4. Step 4: Connect the free rider problem to the low provision of social services in Texas, as people may avoid paying taxes for public goods, resulting in less funding and fewer services.
5. Step 5: Contrast this with other options: efficient markets allocate private goods well but struggle with public goods; positive externalities encourage more provision, not less; and diminishing marginal utility relates to individual consumption, not public service provision.