Future Business Leader Achievments (FBLA) Economics Practice Exam

Which scenario exemplifies the free rider problem?

1. Individuals paying for healthcare insurance

2. Someone using public services without payment

3. A company paying its fair share of taxes

4. A person contributing to a community project

The correct answer is: Someone using public services without payment

The scenario where someone uses public services without payment perfectly illustrates the free rider problem. This economic concept arises when individuals can benefit from a resource or service without having to pay for it. In the context of public goods, such as parks, law enforcement, or street lighting, these services are typically funded through taxation. Those who do not pay taxes or make voluntary contributions can still enjoy the benefits, leading to a situation where there is insufficient incentive for others to contribute financially. This can result in underfunding and reduced quality of the public service because not everyone pays their fair share, creating a reliance on the contributions of others. In the other scenarios, individuals are either directly paying for services or contributing to projects, which does not capture the essence of the free rider problem.