Economics: Public Goods
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Economics: Public Goods

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Questions and Answers

Which of the following characteristics is NOT a feature of a public good?

  • Free provision by the private sector
  • Non-rivalry in consumption
  • Excludability (correct)
  • Positive externalities

    • What is the primary reason why the NHS is not considered a public good?

  • It is provided by the public sector
  • It is a private good
  • There is rivalry and excludability (correct)
  • It is a merit good

    • What is the consequence of asymmetric information in the market for second-hand cars?

  • Higher prices for all second-hand cars
  • No effect on the market price
  • Lower prices for all second-hand cars (correct)
  • Increased demand for second-hand cars

    • What type of good is the NHS, according to the text?

    <p>Merit good</p> Signup and view all the answers

    What is the term for the situation where both parties have the same knowledge in a market transaction?

    <p>Symmetric information</p> Signup and view all the answers

    In a national health service, which of the following is an advantage that is likely to occur?

    <p>Benefiting from economies of scale, leading to lower average costs</p> Signup and view all the answers

    What is one of the disadvantages of the public sector providing public services?

    <p>Possible diseconomies of scale</p> Signup and view all the answers

    If the government subsidizes private doctors to treat people, what is one of the potential advantages?

    <p>Increased access to health care for everyone</p> Signup and view all the answers

    Why might the government consider privatizing public services?

    <p>To reduce waiting lists in the National Health Service</p> Signup and view all the answers

    What is one of the advantages of the private sector providing public services?

    <p>A profit incentive to cut costs and provide a more efficient service</p> Signup and view all the answers

    What is a potential issue with introducing a profit motive into public services such as healthcare?

    <p>It is not practical to give performance-related pay to nurses and doctors</p> Signup and view all the answers

    Why might the government provide a subsidy for healthcare services?

    <p>Because health is a merit good and will be underprovided in a free market</p> Signup and view all the answers

    What is a potential drawback of government advertising campaigns to overcome market failure?

    <p>They may not be effective in changing people's behavior</p> Signup and view all the answers

    What is a possible justification for government regulation in the healthcare industry?

    <p>To prohibit certain behavior that may harm people's health</p> Signup and view all the answers

    Why might the government use taxation policies to overcome market failure in the healthcare industry?

    <p>To fund government advertising campaigns</p> Signup and view all the answers

    Why might a government prohibit the production and consumption of certain goods or services, rather than trying to tax them?

    <p>To prevent people from paying the full social cost</p> Signup and view all the answers

    What is one potential drawback of providing free NHS prescriptions?

    <p>Increased opportunity cost of higher taxes or lower government spending in other areas</p> Signup and view all the answers

    What might be an unintended consequence of prohibiting a certain good or service?

    <p>Empowerment of organized crime</p> Signup and view all the answers

    Why might people underestimate the benefits of taking a prescription drug?

    <p>Lack of affordability due to high prices</p> Signup and view all the answers

    What is the main advantage of free NHS prescriptions, according to the text?

    <p>Reduced inequality in healthcare</p> Signup and view all the answers

    What is the main reason why firms are unwilling to provide public goods?

    <p>Because it is difficult to charge consumers for using them</p> Signup and view all the answers

    What is the primary objective of subsidizing goods with positive externalities?

    <p>To increase social efficiency</p> Signup and view all the answers

    What is the effect of a subsidy on the supply curve?

    <p>It shifts the supply curve to the right</p> Signup and view all the answers

    What is the primary function of taxation policies in the context of public goods?

    <p>To provide a means of charging consumers for public goods</p> Signup and view all the answers

    Why might a subsidy be ineffective in increasing demand?

    <p>If demand is inelastic</p> Signup and view all the answers

    What is the primary advantage of tradeable permits in addressing negative externalities?

    <p>They create a market-based incentive to reduce pollution</p> Signup and view all the answers

    Why are quasi-public goods often provided by the government?

    <p>Because they are non-rivalrous but partially excludable</p> Signup and view all the answers

    What is a potential drawback of subsidy programs?

    <p>They require higher taxes on other goods</p> Signup and view all the answers

    What is the socially efficient level of production in a subsidized market?

    <p>Where SMB = SMC</p> Signup and view all the answers

    What is the primary goal of subsidy programs in the context of positive externalities?

    <p>To internalize the positive externality</p> Signup and view all the answers

    What is a possible result of government intervention in the economy, according to the concept of government failure?

    <p>Net welfare loss</p> Signup and view all the answers

    What can be a limitation of government intervention in the economy, with respect to incentivizing workers?

    <p>Lack of profit motive</p> Signup and view all the answers

    What is an example of an unintended consequence of government intervention in agriculture?

    <p>Over-production and environmental degradation</p> Signup and view all the answers

    What is a potential drawback of government subsidies in promoting economic development?

    <p>Increased dependence on government support</p> Signup and view all the answers

    What is a possible reason for government failure in promoting economic development?

    <p>Inefficient allocation of resources</p> Signup and view all the answers

    What is a potential consequence of price controls in agriculture, as seen in minimum prices?

    <p>Over-production and environmental degradation</p> Signup and view all the answers

    What is a limitation of government provision of public services, such as healthcare?

    <p>Lack of incentives for efficient service provision</p> Signup and view all the answers

    What is a potential reason for government intervention in the economy, with respect to economic development?

    <p>To reduce poverty and promote economic development</p> Signup and view all the answers

    What is a possible drawback of government regulation in industries, such as healthcare?

    <p>Inefficient allocation of resources</p> Signup and view all the answers

    What is a potential benefit of government subsidy programs, with respect to economic development?

    <p>Increased economic growth</p> Signup and view all the answers

    Study Notes

    Public Goods and Private Goods

    • A public good is a good that is non-rivalrous (consumption by one person does not reduce the amount available for others) and non-excludable (it is not possible to provide a good without it being possible for others to enjoy).
    • Examples of public goods include national defense and street lighting.
    • A private good is a good where the benefits accrue to the individual and others are prevented from consuming it. Private goods are rivalrous and excludable.
    • Examples of private goods include apples and cars.

    Asymmetric Information

    • Asymmetric information occurs when one party has more information than other parties.
    • This can lead to problems such as people being reluctant to buy second-hand cars due to lack of trust, resulting in lower prices for all second-hand cars.

    Merit Goods

    • A merit good is a good that people may underestimate or be unaware of the benefits of consuming.
    • Examples of merit goods include vaccinations and a healthy workforce, which have positive externalities.
    • The government may subsidize private doctors to treat people or pay for a national health service directly to ensure everyone has access to this important merit good.

    Public Sector vs. Private Sector

    • The public sector (government) provides goods and services, but not all goods provided by the public sector are public goods.
    • The private sector has a profit incentive to cut costs and provide a more efficient service.
    • Disadvantages of the private sector include the difficulty of introducing a profit motive in public services, potential for inequality, and underprovision of merit goods.

    Government Intervention

    • The government may provide information about certain goods to overcome market failure, such as warning about the health dangers of tobacco and alcohol.
    • Regulation can be used to overcome market failure, but it depends on enforceability.
    • Subsidies can be used to encourage consumption of underprovided goods, but they can be expensive and may not be effective if demand is inelastic.

    Evaluation of Government Intervention

    • Government advertising campaigns can be costly and may not be effective.
    • Regulation can be simple and effective, but may not be the most efficient level of production in society.
    • Subsidies can increase demand, but may require higher taxes and may not be effective if demand is inelastic.

    Welsh Government Policies

    • The Welsh government has introduced free NHS prescriptions to overcome the market failure of underconsumption of prescription drugs.
    • Free prescriptions can help reduce inequality, but may require higher taxes or lower government spending in other areas.

    Subsidies

    • A subsidy is a payment by the government to firms to encourage consumption of underprovided goods.
    • Subsidies can increase demand and reduce price, but can be costly to the government and may not be effective if demand is inelastic.

    Positive Externalities

    • A positive externality occurs when producing a good causes a benefit to a third party.
    • Examples include beekeeping, which helps to pollinate nearby apple trees, and taking the train to work, which reduces traffic congestion.

    Government Failure

    • Government failure occurs when government intervention in the economy causes a net welfare loss.
    • Causes of government failure include lack of incentives for government workers and unintended consequences of government intervention.

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    WJEC AS Economics Revision Guide PDF

    Description

    Learn about public goods, how they differ from private goods, and how they can be provided by the free market or the public sector. Understand the characteristics of public goods and how to identify them.

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