Asked by Joseph Hernandez on Jul 24, 2024
Verified
There are 500 families in a neighborhood that are affected by air pollution from a local factory. The pollution is within legal limits, but could be reduced further if the company spent $10,000 on upgraded ventilators. The company agrees to install the ventilators if the affected families contribute the $10,000. A committee starts to collect donations to pay for the ventilators. Which of the following is most likely to occur?
A) Because there are relatively few families involved and the individual contribution is so small, all families will voluntarily contribute.
B) Because each individual contribution is so small and individuals will benefit from the reduction in air pollution whether they contribute or not, most people will not contribute and the firm will not upgrade the ventilators.
C) Even if the families raise $10,000, the firm will not reduce its air pollution since it is within legal limits.
D) The courts will force the firm to spend the $10,000 regardless of whether or not the families contribute the money.
Free-Rider Problem
A situation where individuals consume more than their fair share of a public resource, or shoulder less than a fair share of the costs of its production, without contributing to the resource's provision.
Air Pollution
The presence of harmful or excessive quantities of substances, including gases, particulates, and biological molecules, in the Earth's atmosphere, causing diseases, allergies, or environmental damage.
Donations
Voluntary transfers of resources, including money or goods, from one party to another without the expectation of receiving something in return.
- Distinguish between public and private solutions to externalities and the conditions under which they are effective.
- Examine the consequences of externalities on market inefficiencies and the function of governmental intervention in mitigating these shortcomings.
Verified Answer
AX
Aahsndkde XhdjmeJul 26, 2024
Final Answer :
B
Explanation :
This scenario is an example of the free-rider problem, where individuals may not contribute to a public good (in this case, cleaner air) because they can benefit from it without paying for it, leading to under-provision of that good.
Learning Objectives
- Distinguish between public and private solutions to externalities and the conditions under which they are effective.
- Examine the consequences of externalities on market inefficiencies and the function of governmental intervention in mitigating these shortcomings.