A-LevelEconomicsGovernment microeconomic intervention9708/22 · Feb/Mar 2017 · Q220 Marks

Explain the difference between public goods and private goods. Consider why profit can be made through the supply of one type of good, but not the other.

(a)Explain the difference between public goods and private goods. Consider why profit can be made through the supply of one type of good, but not the other.[8]
(b)Discuss why merit goods may be under-consumed in a mixed economy. Consider whether maximum prices or education campaigns would be more effective in ensuring that these goods are supplied in appropriate quantities.[12]

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2017). The mark or mark type is shown in brackets.

For knowledge and understanding of public goods in terms of non-excludability and non-rivalry (Up to 2 marks)
For knowledge and understanding of private goods in terms of excludability and rivalry in consumption (Up to 2 marks)
For application showing why profit can be made in the supply of private goods (Up to 3 marks) but not in the supply of public goods because of the free-rider problem that means that a price cannot be charged (Up to 3 marks).
Public goods, in contrast to private goods, are non-excludable and non-rival (and non-rejectable). As a result if they were provided by the private sector there would be the free-rider problem meaning that no profit could be made from their provision.
Merit goods are under-consumed because of incomplete information.
For analysis: explaining how maximum prices might work to increase provision with due reference to the strengths and weaknesses of this approach. (Up to 6 marks)
Maximum prices set the price of the merit good below equilibrium so that the merit good becomes more affordable. This will make consumers more willing to buy, but a shortage will develop so quantity consumed will actually fall unless the government takes further action such as subsidising production.
For analysis: explaining how education campaign might work to increase provision with due reference to the strengths and weaknesses of this approach. (Up to 6 marks)
Education campaigns are designed to improve information and as a result increase the demand for the merit good, raising price and leading to an extension in supply. The weakness of this method is that these campaigns tend to be expensive and they may not be successful if poorly designed.
(8 marks maximum for analysis)
For evaluation assessing which is the most effective in increasing consumption with due reference to the strengths and weaknesses explained in the analysis. (Up to 3 marks)
and providing a reasoned conclusion (1 mark)