Question

Give an example of a setting in which a free rider is present.

Short answer

A setting where a free rider is present is a public transport system where a passenger travels without purchasing a ticket. This passenger takes advantage of the service provided without contributing to its cost.

Step-by-step solution

Understand the concept of Free Rider

A free rider is a person or group that benefits from an economic or societal resource but does not bear the cost associated with this resource. These are individuals who consume more than their fair share or contribute less than their fair share.

Identify a common situation

Common situations of free riders occur in public goods or services such as public transport. People using public transportation without buying tickets illustrate the free rider problem. While everyone is supposed to pay for using the service, some passengers avoid paying. However, they still enjoy the service despite being free riders.

Give the example

An example of a setting where a free rider exists is the public transport system where a passenger does not buy a ticket but uses the service. The cost of this 'free ride' is borne by the paid passengers and the public transport company.

Key concepts

Public Goods

Public goods are commodities or services that are made available to all members of a society, regardless of one's ability to pay for them. These goods are characterized by two key properties: they are non-excludable and non-rivalrous.

Non-excludability implies that once a public good is provided, it is not possible to prevent individuals from consuming it. This creates a scenario where people can benefit from the good without contributing to its cost—a tendency known as the free rider problem. Non-rivalry, on the other hand, means that one individual's consumption of the good does not reduce its availability to others.

Classic examples of public goods include clean air, national defense, and street lighting. Understanding the nature of these goods is vital, particularly in education, as it lays the foundation for comprehending complex economic concepts and encourages responsible civic behavior.

Economic Resources

Economic resources are assets that contribute to the creation of wealth and services within an economy. They include land, labor, capital, and entrepreneurship and are utilized to produce goods or services that satisfy human wants and needs.

Within the context of the free rider problem, understanding these resources is essential because free-riders utilize resources without proper compensation. This can lead to what is known as 'market failure', where resources are not allocated efficiently, and public goods are underproduced because the incentives for individual contributions are weak.

Educationally, it is important to properly explain economic resources to ensure that students can critically assess how they are used within the economy and the impact of free-riding on resource allocation. These discussions can pave the way for exploring solutions to mitigate the free rider problem, such as taxes or regulations.

Public Transport System

A public transport system is a quintessential example of a service that often wrestles with the challenges of the free rider problem. As a form of a public good, it provides essential mobility services that are critical for the functioning of modern societies.

Free riders compromise a public transport system by creating revenue losses and potential service cutbacks. Every instance of fare evasion represents a cost that must be covered by the service provider, typically resulting in higher fees for paying customers or increased governmental subsidies, both of which have economic impacts.

Teaching about public transport systems within the context of the free rider problem highlights the importance of societal responsibility and ethics. It opens up discussions about how to design fare collection systems and encourages dialogue around communal contributions to shared resources and the effects individual actions have on the greater community.