A private developer proposes constructing a regional early-warning tsunami detection network. However, because it is impossible to prevent coastal vessels and residents from receiving the broadcasted warning signals once they are sent, private investment is withdrawn.
Which statement correctly identifies the economic characteristic causing this market failure and the resulting outcome?
The network is non-rival in consumption, which directly prevents a price from being charged to users, leading to a missing market.
The network is non-excludable, which allows consumers to 'free-ride' without paying, preventing private firms from generating revenue and resulting in a missing market.
The network exhibits positive externalities, causing private firms to overproduce the service to maximize profit, requiring corrective taxation.
The network is a rival good, meaning that one resident's consumption of the warning reduces the safety benefits available to other residents.
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.