The market will not supply a pure public good, so the government steps in. It has two ways to do it.
Two ways to provide a public good
Direct provision
The government makes it and pays with taxes: the army, street lights.
Contracting out
The government pays; a private firm builds or runs it: a new road.
The points to remember
- Taxes solve the free-rider problem: everyone pays, whether they use the good or not.
- The state must decide which public goods and how much, without prices to guide it.
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Many goods are only partly public. A quasi-public good fails one of the two tests some of the time.
Pure or quasi?
| Good | Rivalrous? | Excludable? | So |
|---|---|---|---|
| National defence | No | No | Pure public good |
| A road | Yes, when crowded | Yes, with a toll | Quasi-public good |
| A city park | Yes, when crowded | Partly: gates, opening hours | Quasi-public good |
Remember it as: Quasi-public: public most of the time, private when it is crowded or charged.
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Answer exam-style questions with model answers. Learn exactly what earns marks and what doesn't.
Without prices, the government uses cost-benefit analysis to decide what to build.
Our example (made-up numbers)
| Value | |
|---|---|
| Cost of a new flood wall | €50 million |
| Damage it prevents over 30 years | €80 million |
| Net benefit | +€30 million: build it |
Why it is hard
Opportunity cost
The €50 million could pay for a new hospital instead.
Guessing the future
Nobody knows how many floods there will be.
Valuing the hard things
What is a saved life or a quiet street worth?
Paper 1 asked this in November 2024, as part (b) for 15 marks; May 2023 and November 2022 asked nearly the same.
Using real-world examples, evaluate the view that public goods should always be provided by the government.
Model answer plan
See the answer broken into clear points, with guidance on how each point earns marks.
How the 15 marks are given
| Marks | What your answer needs |
|---|---|
| 13–15 | Theory fully explained, terms right all the way through, balanced evaluation, real examples fully developed to support the argument |
| 10–12 | Theory explained, terms mostly right, evaluation mostly balanced, real examples developed |
| 7–9 | Theory partly explained, some evaluation but one-sided, examples partly developed |
| 4–6 | Theory only described, evaluation superficial, examples only named |
| 1–3 | Theory stated but not relevant, no evaluation |