Pre Test
1 answer:
You might be interested in
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.
