Market failure public goods Paper 1| IBDP Economics SL |

IBDP Economics SL – Microeconomics – Market failure public goods Paper 1 Exam Style Practice Questions

Exam Style Questions..

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Question

Discuss the implications of the direct provision of public goods by a government.

▶️Answer/Explanation

Answers may include:

definition of public goods
a diagram is not required
explanation that the non-rivalrous and non-excludable characteristics of public goods means they will not be provided by the free market and will need to be provided by the government
examples of public goods
synthesis or evaluation (discuss).

Question

Using real-world examples, discuss the view that governments should intervene if markets fail to provide public goods.

▶️Answer/Explanation

Answers may include:

Terminology: public goods, market failure.
Theory: explanation of the two characteristics of public goods (non-rivalrous, non-excludable), the free rider problem, why the market fails and how governments can intervene by directly providing public goods or by contracting out to the private sector.
Diagram: not needed for this question.
Synthesis (discuss): which public goods should be provided, how much should be provided, benefits derived from government provision vs. private sector provision, costs of provision.
Example(s): real-world examples of where governments have intervened or have not intervened in response to public goods.

Question

Using real-world examples, discuss whether public goods should always be provided directly by the government.

▶️Answer/Explanation

Answers may include:

Terminology: public good.
Explanation: of why the government should directly provide public goods in terms of the advantages involved, such as overcoming the problem of the market not allocating resources to the production of public goods due to the features of non-excludability and non-rivalry, and the free rider problem; the positive externalities associated with public goods; the possible impact of extra government spending on AD and or LRAS.
Diagram: no diagram is required for this question, although some candidates may choose to use a diagram related to the question.
Synthesis (discuss): in terms of the possible reasons why the government should not directly provide public goods, such as the additional government spending involved and the problem of opportunity cost; the problem of deciding which public goods should be provided and in what quantities; the difficulty of estimating future benefits in any cost benefit analysis; the possible benefits to be achieved by contracting out to the private sector.
Examples: use of real-world examples of public goods being directly provided by the government with associated advantages or disadvantages.