Free riding.

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Chapter 5, Problem 5.4.10PA

To determine

Free riding.

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Which of the following is most likely to be a free good? schools sunlight jeans that are sold at clearance prices a new restaurant giving away free tacos on "Taco Tuesday" as a way to kick-start its business

The government uses several tools to implement environmental regulation. For example, mandatory production standards are designed to prevent companies from damaging a public good such as air or water. Emission taxes that create financial incentives for industries to reduce known pollutants, for example, from oil and coal production, are used to reduce negative externalities. The government can also force a company that causes an environmental problem to clean it up, thus solving the free rider problem. Nevertheless, government regulation imposes costs on society: Higher production costs due to regulation may be passed on to households in the form of higher prices, which—if large enough—can harm the economy. Legislation and its enforcement increase the size and cost of government. What type of analysis does government engage in to protect public goods? Explain using economic terms. What is government goal?

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