Why are public goods often undersupplied in a free market?

Public goods are often undersupplied in a free market primarily because their benefits are not captured by the market itself. Public goods, such as clean air or national defense, are characterized by being non-excludable and non-rivalrous. This means that individuals cannot be easily excluded from using them, and one person's use does not diminish another person's ability to use it.

Because of these characteristics, when private firms attempt to provide public goods, there is a disincentive to do so. Individuals can benefit from the good without directly paying for it, leading to what is known as the "free-rider problem." Since individuals can enjoy the benefits of a public good without contributing to its cost, there is little incentive for private market providers to invest in its production. As a result, public goods tend to be undersupplied in a free market, often necessitating government intervention to ensure their provision.

The other options, while related to aspects of goods and market supply, do not accurately capture the essence of why public goods are undersupplied. For instance, excludability and rivalry are characteristics of private goods, not public goods, thereby making it irrelevant to the undersupply issue in this context.