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Market Failure — Public Goods · Paper 1 — Free Economics HL Practice Questions
1MasterySAQ-SCharacteristics of public goods4 marksPaper 1~6 min
In Valoria, the government provides national defence through a professional army. Any resident is protected regardless of whether they pay taxes, and one person being protected does not reduce the protection available to others.
(a)
Draw a fully labelled for the market for national defence, showing the market equilibrium quantity and the socially optimal quantity. [2 marks]
(b)
Using your , analyse why the private market fails to provide the socially optimal quantity of national defence. [2 marks]
Solutions
2MasterySAQ-SThe free-rider problem4 marksPaper 1~6 min
Radio broadcasts are a public good. In Country Z, a private radio station provides news and music. It costs USD 500,000 per year to operate. The station raises revenue only through voluntary listener donations, collecting USD 200,000 annually. The station cannot prevent non-donors from listening.
(a)
Explain why radio broadcasts have the characteristics of a public good. [2 marks]
(b)
Using a , explain why the free-rider problem leads to under-provision of radio broadcasts in Country Z. [2 marks]
Solutions
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