Question 3(a)
[Maximum number: 8]
Explain what is meant by a merit good and why governments provide merit goods such as healthcare free of charge and consider why such provision may not always be successful.
CAIE A-Level Economics 3.1 Reasons for Government Intervention Question Bank
Practise explaining why public goods may be unprovided and merit or demerit goods misallocated, then evaluating whether government action improves on market outcomes.
Exam points
- distinguish public, merit and demerit goods using exclusion, rivalry and information evidence
- explain free riding or underconsumption and overconsumption as sources of misallocation
- evaluate direct provision, information, taxes or subsidies against costs and government failure
Covered syllabus points
Question 12
[Maximum number: 1]
Which policy is most likely to solve the free rider problem caused by public goods?
A
an advertising campaign
B
a direct provision by the government
C
a minimum price
D
a tax on a substitute good