Question

if the free market is called upon to provide public goods, then:
a. there will be more goods provided than is optimal.
b. the market will provide the optimal number of goods.
c. there will be fewer goods provided than is optimal.
d. the market price will be correct, but the optimal amount of output will not be produced.

Explanation:

Public goods are non-excludable and non-rivalrous, meaning consumers can use them without paying (free-rider problem). In a free market, firms have no incentive to produce enough public goods because they can't capture all the benefits from production. This leads to underproduction relative to the socially optimal quantity. Option a is incorrect because free markets produce less, not more. Option b is wrong since the free market fails to reach the optimal level. Option d is incorrect because the market price mechanism doesn't function properly for public goods, as non-excludability breaks the link between payment and access.

Answer:

c. there will be fewer goods provided than is optimal.