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Economics IGCSEPDF 80
118 pagesrevision 46932
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● Reason 1: Non-Excludability:
○ K: Public goods are non-excludable, meaning non-payers cannot be prevented
from consuming them (the free-rider problem).
○ A: Private firms won't produce them since they cannot charge a price, leading to
zero provision and market failure.
● Reason 2: Non-Rivalry:
○ K: One person consuming the good doesn't reduce its availability for others.
○ A: It is efficient for the government to provide the good to everyone, as the
marginal cost of serving an extra user is zero.
P1: Arguments For Free Provision
○ K: Merit goods (e.g., education) generate significant positive externalities (e.g.,
a healthier, more productive workforce).
○ An: Free provision ensures equity and access for the poor, overcoming the
problem of under-consumption that would occur if they were sold at market
prices.
○ An: Universal access to education boosts the human capital of the nation,
directly increasing the economy's long-run productive capacity (AS).
P2: Arguments Against Free Provision
○ K: Free provision is very expensive, requiring higher taxation or increased
government borrowing, which diverts resources from the private sector.
○ An: State-provided services may suffer from inefficiency or low quality due to a
lack of competitive pressure and a reduced incentive to innovate.
○ An: Providing goods for free may lead to over-consumption and waste (e.g.,
longer waiting lists for treatments that aren't critical).
EVALUATION:
K: International intervention involves managing economic relations with other countries,
primarily through trade and finance.
A: Governments negotiate trade agreements to reduce tariffs and quotas, which helps
domestic firms export more and increases national output (GDP).
An: They can use protectionist measures (e.g., imposing tariffs) to shield vital domestic
infant industries from intense foreign competition, allowing them time to grow.
An: Governments manage the exchange rate (sometimes intervening in foreign
exchange markets) to influence the price of imports and exports, affecting the Balance of
Payments.
E: This role is critical as international trade is a major source of economic growth and
stability for most modern economies.
Q1.3: Provision of Merit Goods (8 Marks)
Q1.2: Role at International Level (6 Marks)