Which one of the following is the primary economic reason why public goods, such as national coastguard services, must be funded by the government rather than through a free-market pricing mechanism?
Once the good is provided, it is impossible to exclude non-payers from consuming it, leading to the free-rider problem.
The consumption of the good by one individual reduces the amount available for other citizens.
Private sector firms are legally barred from supplying goods that yield positive externalities.
These goods are merit goods that would be over-consumed if left to private market forces.
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.