A remote island has a natural spring. At a price of zero, the daily demand for raw spring water is 8,000 litres8,000\text{ litres}8,000 litres, while the spring naturally yields 10,000 litres10,000\text{ litres}10,000 litres per day. To make this water potable, however, it must be boiled using firewood collected by islanders. The collection of firewood diverts labour away from fishing.
Which of the following statements correctly classifies the water on the island?
The potable water is an economic good because its production requires labour and firewood that have alternative uses, thereby incurring an opportunity cost.
The raw spring water is an economic good because its natural supply is finite (10,000 litres10,000\text{ litres}10,000 litres per day) rather than infinite.
The potable water is a free good because the raw water from which it is derived has a zero opportunity cost.
Both raw and potable water are free goods because the total daily demand at zero price (8,000 litres8,000\text{ litres}8,000 litres) is less than the spring's natural capacity (10,000 litres10,000\text{ litres}10,000 litres).
123 exam-style questions on AQA A Level Economics 1.1 Economic methodology and the economic problem, covering 1.1.1 Economic methodology, 1.1.2 The nature and purpose of economic activity, 1.1.3 Economic resources, 1.1.4 Scarcity, choice and the allocation of resources, and 1.1.5 Production possibility diagrams. Each one has a worked solution and a mark scheme showing where the marks go.