Econ problem plz help!!?

Question

i dont get this...

a. Explain the difference between “spillovers” and the “free-rider” problem. How can the government adjust for these situations, give two solutions for each, where possible. Also, give real life examples

Answer 1

Spillover

A country receives FDI e.g a multinational company sets up a factory in a poor country, which is generally considered good.

The spillovers are the indirect benefits or costs.

E.g. a positive spillover would be local companies supplying the new factory.

A negative spillover would be the new factory running the smaller local companies in the same market out of business.

Free rider

People who consume more than their fair share of a resource without contributing fairly for the share they have used.

E.g. A 10 house street decides to pay for cleaners to tackle a litter problem. 9 houses agree to pay and contribute to the cost of the cleaning.

The one house that does not is the free rider, because they are receiving the benefits - a litter free street which may increase the value of their house amongst other benefits, but they are not actually paying for it.