In the context of public goods, the free-rider problem arises because:
A. Markets always provide public goods efficiently
B. Individuals can benefit without paying
C. Public goods are excludable
D. Public goods are rivalrous
Answer: Option B
Solution (By JKSSB Mock Tests)
Because public goods are non-excludable, individuals have an incentive to free-ride — enjoy the benefits without contributing to the cost — leading to under-provision by the market.
Explanation:
The Laffer Curve shows that beyond a certain point, increasing tax rates may lead to a decrease in total tax revenue due to reduced economic activity and tax evasion.
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