Which type of group is most likely to experience the free rider problem?

• A. Firms producing excludable goods
• B. Large groups providing public goods
• C. Monopolies in competitive markets
• D. Small groups providing private goods

Answer: (B)

Verified step by step guidance

1. Understand the concept of the free rider problem: it occurs when individuals can benefit from a good or service without paying for it, which typically happens with public goods that are non-excludable and non-rivalrous.
2. Identify the characteristics of different types of goods: private goods are excludable and rivalrous, meaning people can be prevented from using them if they don't pay, while public goods are non-excludable and non-rivalrous, so people cannot be easily excluded from using them.
3. Analyze the group types: small groups providing private goods usually have less free rider problems because exclusion is possible and monitoring is easier; firms producing excludable goods also face fewer free rider issues due to the ability to exclude non-payers.
4. Consider large groups providing public goods: since the good is non-excludable and the group is large, individual contributions are less noticeable, increasing the incentive to free ride on others' payments.
5. Conclude that large groups providing public goods are most likely to experience the free rider problem because the combination of non-excludability and group size makes it difficult to prevent free riding.