When a person is NOT paying anything for public goods, it is known as _________.

Correct — D. A free rider is the person who consumes a good without paying for it.

Public goods are non-excludable: once street lighting or national defence exists, nobody can practically be kept from using it. So each individual has an incentive to enjoy it and let somebody else pay.

That behaviour is the free-rider problem, and it is the standard reason such goods are financed from taxation rather than sold in a market.

Read the stem carefully: it asks what the person is called, not what property the good has. Option (d) is the only one of the four that names a person.

Why the others are wrong

• (a)
  private good — A private good is a thing, not a person, and it is the opposite kind of thing — rival and excludable, so a seller can simply refuse anyone who has not paid.
• (b)
  rivalrous — Rivalrous describes a good whose use by one person leaves less for everyone else. Public goods are the opposite, non-rival, and the word names a property rather than a non-paying consumer.
• (c)
  non-excludable — Non-excludable is the property that makes free riding possible, so it is the closest wrong answer. It still describes the good, while the stem asks for the label given to the person who pays nothing.

Economists classify goods on two axes.

Excludability asks whether a supplier can keep non-payers out. Rivalry asks whether one person's consumption reduces what is left for others.

A private good is both excludable and rival. A public good is neither: national defence, street lighting and a lighthouse serve one more user at no extra cost and cannot practically be withheld.

Because non-payers cannot be shut out, everyone is tempted to let somebody else fund the good. That is the free-rider problem, and it is why public goods are paid for out of taxes.

Key facts

• Public goods are non-rival and non-excludable.
• A free rider consumes a non-excludable good without contributing to its cost.
• The free-rider problem is the standard economic justification for government provision of public goods out of taxation.
• A private good is both rival and excludable, which is what lets a market price ration it.

Common traps

• Picking non-excludable because it is the property that causes free riding. The stem asks for the person, not the property.
• Treating every government-provided good as a public good. A public bus service is government-run but both rival and excludable.
• Reading rivalrous as meaning competition between firms rather than between consumers.

No directly related past PYQ was found.