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Market Failure — Public Goods · Paper 1 — Free Economics SL Practice Questions
1MasterySAQ-SCharacteristics of public goods4 marksPaper 1~6 min
A national weather forecasting service provides storm warnings to all residents via radio and mobile alerts. Once produced, no resident can be prevented from receiving the warnings, and one resident receiving a warning does not reduce its availability to others.
(a)
Draw a fully labelled for a pure public good. Your must show the marginal social benefit () curve, the marginal cost () curve, and the socially efficient level of output . [2 marks]
(b)
Using the concepts of non-excludability and non-rivalry, analyse why a private market will fail to provide storm warnings at the socially efficient level. [2 marks]
Solutions
2MasterySAQ-SCharacteristics of public goods4 marksPaper 1~6 min
A public radio station broadcasts music and news. The broadcast is non-excludable — no listener can be prevented from tuning in — and non-rivalrous — one listener's enjoyment does not reduce signal quality for others. The station relies entirely on voluntary listener donations to cover its operating costs.
(a)
Draw a for the radio broadcast market. Your should show the marginal cost () of broadcasting to additional listeners and a demand curve () representing the sum of listeners' willingness to pay. Label all axes and curves. [2 marks]
(b)
Using the concepts of non-excludability and non-rivalry, analyse why voluntary donations are likely to result in a funding shortfall for the radio station. [2 marks]
Solutions
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