A coastal engineering firm proposes to construct a tidal surge barrier that will protect a low-lying estuary basin housing 15,000 15,000\,15,000 households. Once built, it is impossible to prevent any individual household in the basin from benefiting from the flood protection, and the protection of one household does not reduce the safety of its neighbours.
In a pure free market economy, how is this tidal surge barrier classified, and what is the expected market outcome?
It is a quasi-public good because it is non-excludable but rivalrous in consumption, resulting in the tragedy of the commons and a partial market failure.
It is a merit good because it yields positive externalities of consumption, leading to private-sector underprovision rather than a complete market failure.
It is a public good because it is both non-rival and non-excludable, leading to the free-rider problem and a complete market failure (missing market).
It is a private good because the benefit is restricted to a defined geographic basin, enabling private developers to exclude non-payers, resulting in an efficient market outcome.
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.