CAIE A-Level Economics 1.6 Classification of Goods and Services Question Bank

Practise classifying free, private, public, merit and demerit goods through scarcity, rivalry, excludability and information failure, then connecting each type to allocation…

Exam points

classify goods using scarcity, rivalry and excludability rather than relying on who supplies them
explain free-rider and non-excludability problems when markets provide public goods
link information failure to under-consumption of merit goods or over-consumption of demerit goods

Covered syllabus points

1.6.1—Free and private goods 1.6.2—Public goods 1.6.3—Merit goods 1.6.4—Demerit goods

[Maximum number: 20]

(a)

With the help of examples, explain the nature and characteristics of free goods and private goods (economic goods) and consider the significance of the distinction between these two types of good.

[ 8 ]

(b)

Assess whether education should be classified as a public good or a merit good.

[ 12 ]

Assess whether education should be classified as a public good or a merit good.

Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question.

AO1 and AO2 out of 8 marks. AO3 out of 4 marks.

Indicative content

Responses may include:

AO1 Knowledge and understanding and AO2 Analysis

Public good:

- In contrast to private goods, public goods are provided by society as a whole so that everyone can benefit from them.

- Non-excludability: once a public good has been provided for one person, it is not possible to stop other people from benefiting from such a good (i.e. no one is excluded) (this would not apply to education).

- Non-rivalry: as more people consumer the public good, the benefit to those already consuming it is not reduced (i.e. consumption by one person does not prevent others from consuming it).

- Non-rejectability: even if a person does not want the public good, they are not actually able to reject it.

- Free rider issue: it is impossible to exclude a person who has not paid.

Merit good:

- A merit good is a particular type of private good.

- Like other private goods, a merit good is both rival and excludable.

- What distinguishes a merit good is under-consumption if provided through the private sector as a result of imperfect information in the market, such as education (there has to be a clear focus on education throughout the answer).

(Up to 8 marks)

Level 1 responses will be assertive and lacking in explanations/mainly descriptive and/or mainly lacking in relevance to the question.

Level 2 responses may contain some inaccuracies and will be one-sided. Analysis will be explained at least in part and will be largely relevant to the question.

Level 3 responses will consider alternative policies/concepts etc. and will be balanced. Explanations of points raised will be offered and will be accurate and relevant to the question.

3(b)

AO3 Evaluation

- Evaluation of the distinction between the features and characteristics of a public good and a merit good.

- In conclusion, education is provided through both the public sector and the private sector and so should be considered as a merit good rather than a public good.

Accept all valid responses. A one-sided response cannot gain any marks for evaluation. (Up to 4 marks)

AO1 Knowledge and understanding and AO2 Analysis

AO3 Evaluation

EITHER

[Maximum number: 4]

In 2019, Russia set an aim to quicken its economic expansion - to grow faster than the world as a whole. So far, the plan is off to an uncertain start.

Content removed due to copyright restrictions.

This has also led to a fall in the value of the exchange rate for the Russian currency, the rouble.

$Table 1.1: Russia: Government budget balance as \% of national output$

Table 1.1: Russia: Government budget balance as \% of national output

Fig. 1.1: Russia's annual inflation rate, March 2015 to March 2020

Source: Trading Economics/Ministry of Finance of the Russian Federation

Explain whether school lunches provided free-of-charge by the Russian government would be classified as private goods or public goods.

For clear and accurate understanding of what is meant by the term excludable / non excludable (1 mark) For clear and accurate understanding of what is meant by the term rivalry / non rivalry in consumption
For a correct application of both terms to free school meals $\quad \begin{aligned} & (\mathbf{1} \text { mark }) & (\mathbf{1} \text { mark })\end{aligned}$ For a correct application of both terms to free school meals (1 mark) Leading to a conclusion that free school meals must be private and not public goods (1 mark)

4

Candidates should demonstrate clear understanding of how public and private goods are distinguished by reference to the terms (non)excludability and (non) rivalry but for the first two marks this does not need to be correctly applied to free school meals.

The final two marks may only be awarded if the terms are correctly applied to free school meals. The conclusion must be based on fully accurate application.

[Maximum number: 8]

When a planned economy introduces the price mechanism to allocate some resources, a mixed economy arises.

Explain, using examples, why merit goods are classified as private goods rather than public goods.

All question bank results loaded

Covered syllabus points

1.6 Classification of goods and services question 1

Question (a)

Question (b)

1.6 Classification of goods and services question 2

1.6 Classification of goods and services question 3