Free Rider Problem Essay

Question 1 from chapter 5

“Do monopolies tend always to raise price and lower output?”

Monopoly – man made restriction, where one firm or few control the market and determine the price and output for the product. Monopolies don’t always reduce output and skyrocket prices. For example in order to save the market when other firms try to join it, monopolies may do 180 and decrease the prices and increase output. When monopoly is fully established it has the advantage of the economy of scales. When smaller producers would not even dream to compete with them. The production price drops significantly the more products you produce. The monopoly may drop the price lower then the cost of production for a time and flood the national or even foreign

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Question 2 from chapter 6

“Explain the significance of the “free-rider” problem.”

Free rider problem - the market mistake when a person can use public goods and recourses without paying for it. Public goods – favor each one and nobody could be expelled from it Ex. people that don’t pay taxes and use public roads or transport. Free rider problem 
exist with goods or recourses that cannot be restricted or cease to exist. Basically the exploit of the
goods or services by people that don’t pay for it.

Mainly free-riders problems happens with public properties therefore government

Is entitled to apply rules, in order to hold back people in joining it.

One of the good examples could be about IRS- an organization that is collecting taxes. If someone would try to avoid paying the taxes could lead to paying more than two hundred fifty dollars of penalty and sometimes even five years in prison.

Here is the list of free-rider problem, situation in real life, which we don’t take into consideration:

• For example downloading movie illegally, which only released in a cinema’s in some countries such as United States, Germany,