A municipal authority is evaluating two proposed infrastructure developments for a coastal city:
Which of the following statements correctly identifies the economic classification and characteristics of these two projects?
Project X is classified as a merit good because its benefits are limited to shoreline property owners, while Project Y is a pure public good because it is owned and operated by the municipal authority.
Project X is non-rival but excludable, allowing private firms to allocate it efficiently via the price mechanism, while Project Y is non-excludable and rival, meaning it must be funded entirely via municipal taxation.
Project X is a pure public good because it is non-excludable and non-rival, whereas Project Y is a quasi-public good because electronic tolling enables excludability and road congestion introduces rivalry.
Project Y suffers severely from the free-rider problem due to electronic tolling, whereas Project X is completely exempt from the free-rider problem because it automatically protects all citizens.
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.