1.3.3 Public Goods — Practice Questions

Six original multiple-choice questions on public goods, written to the style and difficulty of Edexcel Paper 1 Section A.

6 questions Edexcel A-Level Multiple choice Model answers included

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6 questions in this set

  1. 1. A lighthouse warns every ship in the area, and its operator has no practical way of charging the ships that pass. The characteristic being described is

    Definition in context

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    Answer: A (Non-excludability.). Non-excludability means it is impossible, or prohibitively costly, to prevent non-payers from consuming the good once it exists. Light shines on every ship whether or not it has paid.
    Keep it separate from what follows from it. Non-excludability is a property of the good; free riding is the behaviour it invites; under-provision is the outcome. The question asks for the property.

    Why the other options are wrong

    • B — Non-rivalry is that one ship's use of the light leaves no less for the next. A lighthouse is non-rival too, but that is not what an inability to charge describes.
    • C — Free riding is the consequence of non-excludability — people benefiting without paying because they can. The characteristic is what makes it possible.
    • D — Under-provision is the market outcome at the end of the chain, not a characteristic of the good.

  2. 2. The marginal cost of letting one more person into a live broadcast is zero and their watching takes nothing away from anyone else, but the broadcaster can still require a subscription. The good is

    Definition in context

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    Answer: B (Excludable and non-rival.). Take the two properties one at a time.
    Rivalry: an extra viewer costs nothing to serve and reduces nobody else's viewing, so the good is non-rival.
    Excludability: a subscription can be required, so non-payers can be kept out — the good is excludable.
    Only a good failing both tests is a pure public good. This one fails only the rivalry test, so a private firm can charge for it and will supply it.

    Why the other options are wrong

    • A — Rival means one person's consumption leaves less for others. The stem says the opposite — watching takes nothing away from anyone else.
    • C — Both halves are wrong. The subscription makes it excludable, and the zero marginal cost makes it non-rival.
    • D — This is the pure public good combination, and it is what a broadcaster without the ability to charge would face. Here the subscription is the difference.

  3. 3. Residents of a village would each gain from a flood barrier, but every resident refuses to contribute, each expecting the others to pay. The barrier is never built. This illustrates

    Applied reasoning

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    Answer: C (The free rider problem.). The barrier would protect the whole village whether or not any given household paid for it. That makes withholding payment individually rational — you get the protection either way.
    The trouble is that everyone reasons identically, so nobody pays and nothing is built. This is the free rider problem, and it is why non-excludable goods end up not merely under-provided but often not provided at all.

    Why the other options are wrong

    • A — Asymmetric information is one party knowing more than another. Every resident here knows exactly what the barrier would do and what it would cost.
    • B — Non-rivalry is a property of the good — one household's protection does not reduce another's — and it is true here. But it is not what stops the barrier being built; the inability to charge is.
    • D — Rationing is the price mechanism allocating a scarce good among buyers. Here no price is charged and no good exists to allocate.

  4. 4. Private firms do not supply national defence. The reason is that they

    Applied reasoning

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    Answer: C (Have no way of charging those who benefit from it.). Firms supply goods when they can capture revenue from them. Defence protects everyone within a country's borders simultaneously, and there is no way to withhold it from a household that declines to pay.
    With no way to collect revenue there is no profit incentive, however valuable the good is. That is the whole difficulty: national defence is enormously valuable and completely unsellable, which is why it is funded from taxation instead.

    Why the other options are wrong

    • A — The marginal cost of protecting one more person is close to zero — that is non-rivalry. If costs did rise per user, charging would be more attractive rather than less.
    • B — Cost is not the obstacle; defence is extraordinarily expensive. The obstacle is that the money cannot be collected from the beneficiaries.
    • D — The barrier is economic, not legal. Even where private security firms are permitted, none could defend a country and bill its residents for it.

  5. 5. Table 1 sets out the properties of four goods.
    Using Table 1, the good the free market is least likely to provide at all is

    Data interpretation

    Table 1: Properties of four goods
    Can non-payers be excluded? Does one person's use reduce what is left?
    Good 1 Yes Yes
    Good 2 Yes No
    Good 3 No Yes
    Good 4 No No
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    Answer: D (Good 4.). A pure public good is the one that fails both tests: non-payers cannot be excluded, and one person's use reduces nothing.
    Good 4 is the only one answering no to both questions. Because non-payers cannot be shut out, every buyer has an incentive to free ride; because nobody pays, no firm has a reason to supply it. The result is non-provision rather than merely too little.

    Why the other options are wrong

    • A — Excludable and rival — an ordinary private good. Markets supply these perfectly well, since the seller can charge and each unit sold is used up.
    • B — Excludable but non-rival. The producer can still charge, so there is a profit incentive; a cinema screening or a subscription broadcast works this way.
    • C — Non-excludable but rival. This causes over-use rather than non-provision, because each user really does deplete what is left for the next.

  6. 6. A government provides street lighting and funds it from general taxation rather than by charging the people who walk beneath it. The economic justification is that

    Applied reasoning

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    Answer: C (Taxation compels the payment that free riding prevents.). The free rider problem is a collective action failure: everyone wants street lighting and nobody will volunteer to pay for it, because the light falls on them either way.
    Taxation solves it by removing the choice. Payment becomes compulsory, so the good gets funded despite nobody having a private incentive to contribute. That is the economic case — not that the state is a better provider, but that it is the only body able to make everyone pay.

    Why the other options are wrong

    • A — Nothing suggests taxation is administratively cheaper. The point is that charging is not possible at all, not that it costs more.
    • B — Street lighting is non-rival — one person walking under a lamp leaves no less light for the next. Rationing it would waste a service that costs nothing extra to share.
    • D — Public ownership carries no guarantee of lower costs, and it is not the argument. The argument is that no private firm could collect the revenue in the first place.

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