Market Failure — Public Goods · Paper 2 — Free Economics SL Practice Questions

The small island nation of Maldives depends heavily on coastal sea walls to protect residents from rising sea levels. Sea walls are non-excludable: once built, no resident can be prevented from benefiting. They are also non-rivalrous: one person's protection does not reduce the protection available to others. A local economist observes that no private company has built sea walls, despite surveys showing high willingness to pay among residents. The government is now considering three responses: direct provision funded by taxation, subsidising a private contractor, or doing nothing and allowing voluntary contributions.

Country X is a developing nation in sub-Saharan Africa with a high incidence of malaria. A private pharmaceutical company has developed a mosquito net treated with a long-lasting, area-wide insecticide. The net has two key characteristics: - Once deployed in a village, it is impossible to prevent any resident from benefiting from the reduced local mosquito population. - One household's use of the net does not diminish the insecticide benefit available to neighbouring households. The government of Country X is considering two policies: - Policy A: Provide nets free to all households, funded by foreign aid. - Policy B: Subsidise $50\%$ of the retail price and allow private firms to sell the nets.

A small island nation, Maldivia, has a coastline threatened by rising sea levels. A private company proposes building a network of sea walls to protect the entire island. The company states that it cannot prevent any resident from benefiting from the sea walls once built, and one person's protection does not reduce the protection available to others. The government is considering whether to fund the project through compulsory taxation or to leave it to the private market.