Question

Tom, Mary and Jill have apartments in the same building. A security system for their building costs $750. Tom is willing to pay $100 for the security system, Mary is willing to pay $300 and Jill is willing to pay $300. They have a meeting to vote on whether to pay $250 each for the security system. At least two of them must vote for the system to be installed before the vote is passed. The efficient outcome is to have the security system installed. After the meeting the security system will __________, which illustrates ___________.

Answer 1

Answer:

Be installed / the free-rider problem.

Explanation:

The free-rider problem is the definition to a market failure in which those who benefit from a certain resource (in this case the security system) does not pay for said resource. In this case, given that the security system will cover the whole building, those (like Tom) that do not pay will continue to benefit from it regardless.