Which of the following statements best describes the production of public goods without government intervention?

• A. Public goods will be underproduced due to the free-rider problem.
• B. Public goods will be produced at the socially optimal quantity.
• C. Public goods will not be affected by the absence of government intervention.
• D. Public goods will be overproduced because everyone pays for them.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the definition of public goods. Public goods are characterized by being non-excludable (people cannot be prevented from using them) and non-rivalrous (one person's use does not reduce availability to others).
2. Step 2: Recognize the free-rider problem. Because individuals cannot be excluded from using public goods, they have an incentive to avoid paying for them, expecting others to cover the cost. This leads to underfunding.
3. Step 3: Analyze the impact of no government intervention. Without government provision or funding, private firms have little incentive to produce public goods since they cannot easily charge consumers, leading to underproduction.
4. Step 4: Contrast with socially optimal production. The socially optimal quantity of a public good is where the sum of individuals' marginal benefits equals the marginal cost of production, but free-riding prevents reaching this level.
5. Step 5: Conclude that public goods will be underproduced without government intervention due to the free-rider problem, making the first statement the best description.