Topic 2.9 · SL and HL
Market failure: public goods: notes and practice questions
Summary
- This topic covers the characteristics of public goods and the market failure associated with them, along with government responses.
- Public goods are non-rivalrous, meaning consumption by one person does not reduce availability for others.
- Public goods are non-excludable, meaning it is impossible to prevent people from consuming the good, even if they don't pay.
- The free rider problem arises because individuals can consume public goods without paying, leading to underprovision by the market.
- Governments may intervene through direct provision or by contracting out to the private sector to ensure public goods are supplied.
How it is examined
Short and definitional at the front end. May 2025 SL Paper 1 TZ1 Q1(a) asked candidates to distinguish between public goods and merit goods for 10 marks, which is 2.9 against 2.8 in one question. The free rider problem is a standard 2-mark Paper 2 define.
Key ideas
- Public goods: non-rivalrous and non-excludable, and the free rider problem. (AO2)
- Government intervention in response to public goods: direct provision, and contracting out to the private sector. (AO3)
Guiding questions
- Why does the market not supply some goods at all?
Linking questions
- Contrasts with common pool resources in 2.8, which are rivalrous but non-excludable, and with merit goods, which are both rivalrous and excludable.
- Direct provision is also an intervention tool in 2.7.
- Infrastructure provision in 4.10 is public good provision in a development setting.
Practice questions
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Where marks are lost
- No real-world example, or a stated one. An answer that names a country and stops cannot reach the top two bands.
- One-sided argument. Balance is an explicit axis. A student who argues only that a policy works is capped at 9 out of 15 on that axis alone.
- Diagram present but not explained. The diagram bullet escalates across three bands: included, included and explained, included and fully explained. A diagram dropped into an answer without prose that refers to it sits at 5 to 6 on a 10-mark part.
