A coastal protection agency operates two distinct services in a maritime region:
Assuming both services are left entirely to an unregulated, profit-maximising free market, which of the following statements correctly classifies these goods and predicts their market provision?
The tidal barrier is a pure public good and will not be provided by private firms due to the free-rider problem; the broadcasting system is a quasi-public (club) good and can be profitably provided by private firms because it is excludable.
Both services are pure public goods because both are non-rival in consumption, meaning profit-maximising private firms will completely fail to supply either of them.
The tidal barrier is a private good because its benefits are localized to a single bay, whilst the broadcasting system is a pure public good that will experience complete market failure.
The tidal barrier is a quasi-public good that will be overprovided by private firms, whilst the broadcasting system is a merit good that requires direct government subsidisation to resolve the free-rider problem.
378 exam-style questions on AQA A Level Economics 1.8 The market mechanism, market failure and government intervention in markets, covering 1.8.1 How markets and prices allocate resources, 1.8.2 The meaning of market failure, 1.8.3 Public goods, private goods and quasi-public goods, 1.8.4 Positive and negative externalities in consumption and production, 1.8.5 Merit and demerit goods, 1.8.6 Market imperfections, 1.8.7 Competition policy (A-level only), 1.8.8 Public ownership, privatisation, regulation and deregulation of markets (A-level only), 1.8.9 Government intervention in markets, and 1.8.10 Government failure. Each one has a worked solution and a mark scheme showing where the marks go.