IGCSE Economics CIE Section 2 – The Allocation of Resources Practice Test

Public goods have two defining features: non-excludability (you can’t reliably prevent people from using the good) and non-rivalry (one person’s use doesn’t reduce another’s). Because of non-excludability, people can benefit without paying, so individuals have little incentive to pay for them and firms can’t cover costs. This leads to a free-rider problem and the market underprovides these goods. Government provision, funded by taxes, ensures everyone benefits and the good is supplied regardless of individual payment, overcoming the free-rider issue and aligning provision with social value. The other statements misstate the traits of public goods (they are not excludable) or claim private markets are always efficient or that government action worsens the problem, which doesn’t fit how public goods are supposed to work.