A coastal municipality is considering the installation of a new tsunami early-warning siren network. Which of the following best explains why a private, profit-maximising firm is unlikely to provide this service, leading to market failure?
The sirens are rival in consumption, meaning that one resident hearing the warning reduces the safety benefits available to other residents in the area.
The service is non-excludable, allowing individuals to benefit from the warning system without paying, which creates a free-rider problem.
The warning network is a demerit good, meaning consumers underestimate its long-term benefits and will over-consume it in a free market.
The marginal cost of alerting an additional resident within the range of the sirens is extremely high, making it allocatively inefficient.
23 exam-style questions on OCR A Level Economics Public goods. Each one has a worked solution and a mark scheme showing where the marks go.