1.3.3 Public goods Quiz: Pearson Edexcel Economics A, Unit 1

The 20 questions

1. What does it mean for a good to be non-rival?

   • A good that can be bought only by people who are rivals of the producer in the market.
   • A good that can be consumed only once and then disappears from the economy.
   • A good whose price rises whenever another person buys it in the market.
   • One person's consumption of the good does not reduce the amount available for others to consume at the same time.

2. What does it mean for a good to be non-excludable?

   • It is impossible or very costly to prevent people from consuming the good, even if they do not pay for it.
   • It is easy for a seller to refuse access to the good to anyone who has not paid for it in the market.
   • It can be consumed only by the owner, who is able to exclude all other people from using it.
   • It can be sold only to people who live in a particular geographical area of the economy.

3. Which of these is a pure public good?

   • A cinema ticket, since it gives access to one seat and can be refused to anyone without a ticket.
   • A toll road, since drivers who do not pay the toll can be prevented from using the road.
   • National defence, since it is non-rival and non-excludable once provided to the population.
   • A packet of crisps, since it can be consumed by only one person and removed from others.

4. What is the free rider problem?

   • People pay for a good but never use it, so the value of the good is wasted in the economy.
   • People enjoy a non-excludable good without paying for it, so private firms have too little incentive to supply it.
   • Consumers buy a private good at a price below cost, so the seller suffers a loss in the market.
   • Firms receive a subsidy without producing any output, so resources are wasted on support payments in the market.

5. Why might the private sector fail to provide a public good such as a flood defence?

   • Private firms always prefer to supply public goods at a loss, so they never provide them in any market.
   • Flood defences are too cheap for firms to supply, so the market provides them only at prices that cover no costs.
   • Once the defence is built, those who do not pay cannot be excluded, so many will free ride and firms cannot recover costs.
   • Flood defences are rival goods, so private firms can charge a high price to each household that uses them.

6. Which of the following is the best example of a public good that is not pure?

   • A toll-free bridge that becomes congested at peak times, so one user's extra journey reduces the quality for others.
   • A lighthouse that guides all ships in a harbour, since no ship can be excluded from its light.
   • National defence, which protects all citizens from external threats in the same way at the same time.
   • A public street light that lights a road for every passer-by at night in the community.

7. A government considers whether to provide a public park. Which argument is most consistent with the public good characteristics?

   • The park is non-excludable and largely non-rival, so the private sector may under-provide it and the state may supply it.
   • The park is a demerit good that reduces welfare, so the government should prevent its construction altogether.
   • The park is rival and excludable, so the private sector will always provide it efficiently without government help.
   • The park has no benefits to the public, so it should not be provided by either the state or the private sector.

8. Which of these statements best describes the role of the state in public goods?

   • The state should provide only private goods, since public goods are always supplied efficiently by the market.
   • The state provides public goods only when private firms refuse to supply them at any price in the market.
   • The state should never provide public goods, since taxation always reduces welfare more than any public good increases it.
   • The state can provide public goods and fund them through taxation, since it can compel payment that private firms cannot secure.

9. Which of these best illustrates the free rider problem in a community?

   • Residents pay a tax on petrol but do not drive, so the tax revenue is wasted by the government.
   • Residents buy a product in a shop and then return it, so the shop must absorb the cost of the return.
   • Residents benefit from a neighbourhood watch scheme without contributing to its costs, leaving volunteers to bear them alone.
   • Residents pay a fee for a gym membership but never attend, so the gym loses money on each member.

10. Which of the following is a non-rival good that is excludable?

    • A piece of fruit, since one person eating it prevents anyone else from eating the same piece.
    • A paid subscription TV channel, since one viewer's watching does not stop another watching, but non-payers can be blocked.
    • A public park, since visitors cannot be excluded and one visitor's use reduces the enjoyment of others.
    • National defence, since it cannot be provided to some citizens without providing it to all of them.

11. A street light is installed on a road used by many drivers. Which evaluation is most accurate?

    • The light is non-rival and non-excludable, so private provision is unlikely, though the state may provide it through taxation.
    • The light is rival and excludable, so private provision is efficient and the state need not intervene in the market.
    • The light is a demerit good, since it encourages driving and so should be discouraged by government in every case.
    • The light is a private good that drivers should buy individually, since its benefits are limited to the owner of the car.

12. Why might the market provide too little of a public good even if many people value it highly?

    • Because public goods are always rival, so the market can only supply as much as any one person wants to buy.
    • Because individuals cannot be charged for the good in full, so the market does not capture the total value to society.
    • Because public goods are always excludable, so consumers who value them highly cannot obtain them at any price.
    • Because individuals who value it highly always pay the full social value, so the market provides too little for another reason.

13. Which of these best defines a public good in terms of consumption?

    • A good that is used only in the public sector, such as in schools and hospitals, and never sold to individuals.
    • A good that is provided only by the government and cannot be supplied by any private firm in the market.
    • A good that is non-rival and non-excludable, so one person's use does not reduce supply for others and others cannot be excluded.
    • A good that is rival and excludable, so one person's use reduces supply and others can be excluded from using it.

14. Evaluate: is it always the case that a public good must be provided by the government?

    • Yes, since private firms are legally banned from supplying any good that is non-rival in every country in the world.
    • Yes, since public goods can only ever be provided by government in all economies and under any circumstance.
    • No, since governments can fund provision through taxation, but private or voluntary provision may also occur where free riding is limited.
    • No, since public goods are never needed, so neither the state nor the private sector ever has to provide them.

15. A good is non-excludable but becomes rival in use once a certain number of people use it. Which description fits best?

    • It is a public good that is not pure, since it is non-excludable but its use can become rival at high levels of use.
    • It is a private good, since any rivalry in use makes the good excludable by definition in every market.
    • It is a pure public good, since it remains non-rival and non-excludable at every level of use in every case.
    • It is a merit good, since its benefits are rival and therefore its value depends on who consumes it.

16. Which of these goods would most clearly be classed as a private good?

    • A bar of chocolate, since one person's consumption prevents anyone else eating the same bar and sellers can exclude non-payers.
    • National defence, since it protects every citizen at once and cannot be withheld from any of them.
    • A street light, since it illuminates the road for all passers-by at the same time at night.
    • A public park, since visitors cannot be excluded and one visitor's enjoyment does not reduce another's.

17. Why is a lighthouse often cited as an example of a public good?

    • Its light is non-rival and cannot easily be withheld from ships that do not pay, so it is non-excludable.
    • Its light is a merit good, since ships benefit from it only when the government subsidises its operation.
    • Its light is rival, since each ship uses up part of its beam and reduces the light available to others.
    • Its light is excludable, since owners can charge each ship that passes it for the right to see the light.

18. Which of these describes the effect of free riding on voluntary contributions towards a public good?

    • Voluntary contributions always exceed the efficient quantity, since people pay more than they would in a market.
    • Free riding raises voluntary contributions, since non-payers encourage payers to give more in every case.
    • Voluntary contributions tend to fall short of the efficient quantity, since each person may hope that others will pay.
    • Free riding has no effect on voluntary contributions, since people always contribute in proportion to their use.

19. A public good has a total social benefit that exceeds its cost of supply. Why might the market still fail to provide it?

    • The social benefit is paid to the government, so the good can be provided only by the state and never by firms.
    • Private firms always collect more revenue than the social benefit, so they choose not to provide the good at any price.
    • The cost of supply is always zero for public goods, so no firm has any reason to provide them in any market.
    • Private firms cannot collect payment from everyone who benefits, so the revenue they can earn falls short of the cost of supply.

20. Which of the following best describes the efficient provision of a public good?

    • The quantity at which private firms earn normal profit on each unit they sell in the market.
    • The quantity at which the sum of the marginal benefits to all consumers equals the marginal cost of provision.
    • The quantity at which the marginal benefit to one consumer equals the price that consumer pays alone.
    • The quantity at which the total cost of production is at its lowest point for the supplier involved.

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