1.8.3 Public and Private Goods — Practice Questions

Eight original multiple-choice questions on public, private and quasi-public goods, written to the style and difficulty of AQA Paper 3 Section A.

8 questions AQA A-Level Multiple choice Model answers included

Not read the notes yet? Start with the 1.8.3 Public and Private Goods revision notes.

1. 1. The two defining characteristics of a pure public good are that it is

   Definition in context

   Select one answer

   A Excludable and rival.

   B Excludable and non-rival.

   C Non-excludable and rival.

   D Non-excludable and non-rival.
   Show model answer

   Answer: D (Non-excludable and non-rival.). A pure public good is non-excludable — it is impossible or prohibitively costly to stop non-payers consuming it — and non-rival, meaning one person's consumption leaves no less available for anyone else. National defence, street lighting and a lighthouse are the standard examples. Both characteristics must hold; a good with only one of them is a quasi-public good.

   Why the other options are wrong

   • A — Excludable and rival describes a private good, such as a sandwich or a pair of shoes.
   • B — Excludable but non-rival describes something like a subscription streaming service — one more viewer costs the provider almost nothing, but non-payers can be shut out.
   • C — Non-excludable but rival is a common resource such as an ocean fishery, where anyone may fish but every fish caught is one fewer for others.

2. 2. Non-rivalry in consumption means that

   Definition in context

   Select one answer

   A Firms cannot prevent non-payers from consuming the good.

   B One person's consumption leaves no less for others.

   C The good is supplied by the government rather than by firms.

   D Two firms cannot compete to supply the same good.
   Show model answer

   Answer: B (One person's consumption leaves no less for others.). Non-rivalry means the marginal cost of supplying one more user is effectively zero. One more person watching a firework display, or benefiting from a lighthouse beam, takes nothing away from anyone else. It is a statement about the nature of consumption, not about who provides the good.

   Why the other options are wrong

   • A — That is non-excludability, the other characteristic. The two are separate and a good can have one without the other.
   • C — Who provides a good is a policy choice. Public goods are usually state-funded because of their characteristics, but that is a consequence, not the definition.
   • D — Rivalry between firms is competition in a market. Rivalry in this sense concerns consumption by individuals.

3. 3. The free rider problem arises because public goods are

   Applied reasoning

   Select one answer

   A Expensive for governments to provide.

   B Non-excludable, so consumers can benefit without paying.

   C Non-rival, so producing them costs nothing at all.

   D Provided by monopolies with substantial market power.
   Show model answer

   Answer: B (Non-excludable, so consumers can benefit without paying.). Because a public good is non-excludable, anyone can enjoy it once it exists, whether or not they contributed. The rational individual therefore waits for someone else to pay — and since everyone reasons the same way, no one pays and the good is never supplied. Firms cannot use the price mechanism at all, which is why public goods are a case of complete market failure and are typically funded from general taxation.

   Why the other options are wrong

   • A — Cost is a real constraint on any government, but expense is not what stops the market providing the good. Plenty of costly private goods are supplied profitably.
   • C — Non-rivalry means the cost of an extra user is zero. Building the lighthouse or funding the army still costs a great deal.
   • D — Monopoly power is a separate source of market failure and has nothing to do with free riding.

4. 4. Which one of the following is the best example of a pure public good?

   Applied reasoning

   Select one answer

   A A ticketed concert in a large stadium.

   B A toll motorway during rush hour.

   C A loaf of bread bought in a supermarket.

   D Street lighting in a residential area.
   Show model answer

   Answer: D (Street lighting in a residential area.). Street lighting satisfies both conditions. It is non-excludable, since nobody walking down the street can be prevented from benefiting, and non-rival, since one person's use of the light leaves it just as bright for everyone else. That is why it is funded through taxation rather than sold.

   Why the other options are wrong

   • A — A ticketed concert is excludable — you need a ticket — and in a stadium of fixed capacity it is rival too, since every seat taken is one fewer available.
   • B — A toll road is excludable by definition, and during rush hour it is rival: extra vehicles cause congestion that reduces everyone else's benefit.
   • C — A loaf of bread is the textbook private good: excludable and entirely rival.

5. 5. A quasi-public good is best described as a good that

   Definition in context

   Select one answer

   A Has some but not all public good characteristics.

   B Is always provided free of charge by the government.

   C Is non-excludable and non-rival in every circumstance.

   D Is produced by a private firm under a government contract.
   Show model answer

   Answer: A (Has some but not all public good characteristics.). A quasi-public good is only partly non-excludable or only partly non-rival, and often the classification changes with circumstances. A public beach is non-rival on a quiet weekday but distinctly rival in August; a road is non-rival at midnight and rival in the rush hour. Technology can also shift the boundary, as electronic tolling has made roads far more excludable than they once were.

   Why the other options are wrong

   • B — Charging is possible for many quasi-public goods, which is precisely what makes them only quasi-public. Toll roads and entry-fee parks are common.
   • C — Meeting both conditions in all circumstances makes a good a pure public good.
   • D — Who produces the good is a matter of contracting arrangements, not of its economic characteristics.

6. 6. A public beach becomes extremely crowded during a summer heatwave. In economic terms the beach has become

   Applied reasoning

   Select one answer

   A A pure public good, because entry is still free.

   B A private good, because it is now excludable.

   C Rival in consumption, so now quasi-public.

   D Non-excludable for the first time.
   Show model answer

   Answer: C (Rival in consumption, so now quasi-public.). On an empty day the beach is non-rival: one more visitor takes nothing from anyone else. Once it is crowded, each additional person genuinely reduces the space and enjoyment available to everybody else, so consumption has become rival. It remains non-excludable, so it now has one characteristic but not the other — the definition of a quasi-public good.

   Why the other options are wrong

   • A — Free entry establishes non-excludability, but a pure public good must be non-rival as well, and crowding has destroyed that.
   • B — Nothing has been done to keep anyone out. The beach is still non-excludable, so it is not a private good.
   • D — The beach was non-excludable before the heatwave too. What has changed is rivalry, not excludability.

7. 7. Because of the free rider problem, pure public goods are usually

   Applied reasoning

   Select one answer

   A Funded through taxation and provided by the state.

   B Provided by monopolists charging very high prices.

   C Sold at a price equal to their marginal cost of supply.

   D Supplied efficiently by competitive private firms.
   Show model answer

   Answer: A (Funded through taxation and provided by the state.). No firm can charge for a good it cannot withhold, so the market supplies none at all. The usual solution is for the state to fund provision from general taxation, which sidesteps free riding by making contribution compulsory. The remaining difficulty is judging how much to provide, since without prices there is no direct signal of how strongly people value it.

   Why the other options are wrong

   • B — A monopolist still needs to be able to exclude non-payers in order to charge anything. Non-excludability defeats that.
   • C — Marginal cost of supplying one more user is zero for a non-rival good, so a price equal to marginal cost would be zero and would fund nothing.
   • D — Competitive private provision is exactly what fails here, which is why public goods are a case of complete market failure.

8. 8. Electronic tolling makes it cheap and practical to charge every vehicle using a road. In economic terms this technology has

   Applied reasoning

   Select one answer

   A Made the road non-rival as well as non-excludable.

   B Made the road excludable, so it can be provided by the market.

   C Removed the congestion that made the road rival in consumption.

   D Turned the road into a pure public good.
   Show model answer

   Answer: B (Made the road excludable, so it can be provided by the market.). The characteristics of a good are not fixed by nature — technology can change them. Electronic tolling makes it feasible to identify and charge every user, so the road becomes excludable and a private firm can supply it profitably. It remains rival at busy times, so it does not become a private good in every sense, but the market failure caused by non-excludability has been solved.
   The same logic explains encrypted broadcasting and paywalled content: goods that were once effectively public became marketable once exclusion was possible.

   Why the other options are wrong

   • A — Tolling does nothing to relieve congestion, so the road is no more non-rival than before. It affects excludability only.
   • C — Charging may reduce traffic somewhat, but the technology addresses who can be made to pay rather than the physical rivalry of road space.
   • D — Making a good excludable moves it away from being a public good, not towards it.