Question

Assume that television broadcasts are nonrival and nonexcludable (some TV stations, such as those on cable TV, are excludable, but many are not) and that there are no live TV recording devices, such as VCRs or DVRs like TiVo. How can advertising solve the free‑rider problem?

Answer 1

Answer:

Advertising acts in a method similar to a fee. People who watch TV broadcasts must watch ADs. TV stations turn this into money by selling airtime to advertisers.

Explanation:

A non-rival good is a good whose consumption by one person does not reduce the remaining quantity available. An example is a street light.For non-excludable goods, it is impossible to prevent everyone from enjoying the benefits of the good. An example is a lighthouse. This is where the free rider problem comes in.A free rider is someone enjoying the benefits of a good without paying for it.  When a good is both non-rival and non-excludable, it is convenient for consumers to enjoy the benefit without paying for it.If TV broadcasts are both non-rival and non-excludable, everybody can choose to become a free rider. Advertising can solve this problem by converting free riders to potential buyers of goods or services advertised during broadcasts. This way, stations can generate revenue by selling airtime.

Answer 2

Answer: Advertising acts in a method similar to a fee. People who watch TV broadcasts must watch ADs. TV stations turn this into money by selling airtime to advertisers.

Explanation:

A non-rival good is a good whose consumption by one person does not reduce the remaining quantity available. An example is a street light.

For non-excludable goods, it is impossible to prevent everyone from enjoying the benefits of the good. An example is a lighthouse. This is where the free rider problem comes in.

A free rider is someone enjoying the benefits of a good without paying for it.  When a good is both non-rival and non-excludable, it is convenient for consumers to enjoy the benefit without paying for it.

If TV broadcasts are both non-rival and non-excludable, everybody can choose to become a free rider. Advertising can solve this problem by converting free riders to potential buyers of goods or services advertised during broadcasts. This way, stations can generate revenue by selling airtime.