OxfordAQA International AS and A-level Economics: Public goods and externalities (9640) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

Eleven questions on 3.1.5.1, 3.1.5.2 and 3.1.5.3 of OxfordAQA’s International AS and A-level Economics course (9640), specification version 1.2: market failure, public and quasi-public goods, and externalities. Section 3.1 belongs to the International AS, and the A-level extends it. All figures are invented and illustrative. Start with the study guide and revision notes. Related pages: the OxfordAQA A-level Economics hub and checklist.

Questions

1. Explain what a misallocation of resources means. [2]

2. Explain why a flood barrier protecting a town is likely to be a pure public good. [4]

3. A town has 12 households. Each values a clock on the main square at 5 currency units. Installing it costs 42.

(a) Calculate the net benefit to the town of installing the clock. [2] (b) Explain why a private firm may still not supply it. [2]

4. Explain why a road may be a quasi-public good rather than a pure public good. [4]

5. Using broadcasting as an example, explain how technological change can allow a public good to be supplied privately. [3]

6. A lake is open to all. With B boats, the total catch is 30B − B² tonnes, valued at 1 currency unit per tonne. Each boat costs 12 to run. (Illustrative.)

(a) Boats keep joining while the catch per boat, 30 − B, exceeds the cost per boat. Calculate the number of boats on the lake. [2] (b) Calculate the net value (total catch less total cost) with 9 boats. [2] (c) Explain why the open lake ends up with too many boats. [2]

7. A dyeing works faces demand P = 60 − 2Q and private supply P = 12 + 2Q, where Q is thousands of metres of cloth. Its waste costs a downstream town 8 per thousand metres.

(a) Calculate the market equilibrium price and quantity. [2] (b) Calculate the price and quantity when the external cost is included. [2] (c) State the overproduction and calculate the welfare loss. [2]

8. Evening swimming lessons have private demand P = 48 − Q and supply P = 8 + Q, where Q is hundreds of places. Each place gives the wider community an external benefit of 6.

(a) Calculate the market equilibrium price and quantity. [2] (b) Calculate the quantity at which the full benefit to society is counted. [2] (c) Calculate the underconsumption as a percentage of the quantity found in (b), to 1 decimal place. [1]

9. Explain how the absence of property rights can lead to a negative externality, using a river as an example. [4]

10. Evaluate the view that the tragedy of the commons is unavoidable. [8]

11. A sandpit sells sand. The table shows each extra unit (hundreds of tonnes). Burying the nearby road in dust costs the town 3 for each unit. (Illustrative.)

Unit	Value to buyers	Cost to the sandpit
1	22	10
2	20	12
3	18	14
4	16	16
5	14	18
6	12	20

(a) State the number of units the sandpit will supply, with a reason. [2] (b) Find the number of units that is best for society, showing your comparison. [3] (c) Calculate the gain to society from moving to your answer in (b). [2] (d) Evaluate whether the sandpit’s output is certainly too high. [3]

Answers

1. Resources are used in a way that does not give society the greatest possible benefit [1]. Example: too much or too little of a good is produced compared with the socially best amount, or none at all [1]. [2] Examiner insight: Mention society, not just the firm or consumer. A reply that only says “the market does not work” does not show the idea.

2. It is non-rival, because one more person protected does not reduce protection for others [1]. It is non-excludable, because nobody in the town can be left out of the protection [1]. A firm therefore cannot charge individuals [1]. With no revenue, private firms are unlikely to supply it [1]. [4] Examiner insight: Each feature needs its own explanation in the context given. Naming “non-rival and non-excludable” with no link to the barrier is a list, not an explanation.

3. (a) Total benefit = 12 × 5 = 60 [1]. Net benefit = 60 − 42 = 18 [1]. (b) Each household can gain from the clock without paying, so each hopes others will pay (free-rider problem) [1]. With no one paying, the firm earns no revenue and the market is missing, although benefit exceeds cost [1]. [4] Examiner insight: In (b), use the figures: benefit of 60 against a cost of 42 shows that the failure is not about the clock being unworthy.

4. When uncongested, extra users do not reduce others’ use, so it is non-rival [1]. When congested, each extra vehicle slows others, so it becomes rival [1]. Tolls allow drivers to be excluded, so it is excludable [1]. It therefore has some, not all, public-good features [1]. [4] Examiner insight: A good explanation shows the feature changing with conditions. Writing “it is used by many people” makes no point about either feature.

5. Broadcast signals once reached every receiver, so viewers could not be excluded [1]. Encryption and a paid decoder or subscription allow non-payers to be excluded [1]. A firm can now charge and earn revenue, so private supply becomes possible [1]. [3] Examiner insight: Show the before-and-after change in excludability. Simply saying “technology improved” does not answer the question.

6. (a) Set 30 − B = 12 [1], so B = 18 [1]. (b) Catch = 30 × 9 − 81 = 189 [1]. Cost = 9 × 12 = 108, so net value = 81 [1]. (c) Each boat gains its own catch but ignores that it lowers the catch of every other boat [1]. Boats join until net value is 0 (216 − 216), so effort is wasted compared with 81 at 9 boats [1]. [6] Examiner insight: Support (c) with the figures from (a) and (b). Comparing 0 with 81 makes the overuse concrete.

7. (a) 60 − 2Q = 12 + 2Q [1], so Q = 12 and P = 36 [1]. (b) Supply including external cost: P = 20 + 2Q. Then 60 − 2Q = 20 + 2Q [1], so Q = 10 and P = 40 [1]. (c) Overproduction = 12 − 10 = 2 thousand metres [1]. Welfare loss = ½ × 8 × 2 = 8 [1]. [6] Examiner insight: State which curve moves and by how much. Replacing the 12 with 20 in the supply equation is the step to show.

8. (a) 48 − Q = 8 + Q [1], so Q = 20 and P = 28 [1]. (b) Demand showing full benefit: P = 54 − Q. Then 54 − Q = 8 + Q [1], so Q = 23 [1]. (c) Underconsumption = 3. 3 ÷ 23 × 100 = 13.0% [1]. [5] Examiner insight: Use the social quantity (23) as the base, as the question asks. Using 20 as the base would give a different value.

9. Nobody owns the river, so no one can exclude a firm or charge it for dumping waste [1]. The firm counts only its own costs [1]. Private cost is therefore below the full cost to society, which includes harm to fishers and towns downstream [1]. The firm produces more than the socially best amount, a market failure [1]. [4] Examiner insight: Link the missing right to the firm’s cost decision. Saying “the river gets polluted” without the chain scores little.

10. Each user gains in full from extra use but shares the cost, so overuse follows [1]. Without limits, the resource may be depleted [1]. Against “unavoidable”: users can communicate and agree rules, so the outcome is not automatic [1]. Open access differs from shared ownership; where a group controls entry, use can be limited [1]. People are not purely self-interested, as norms matter [1]. Property rights or regulation can limit use, though enforcement can be costly [1]. How much harm occurs depends on how quickly the resource renews [1]. Judgement: the tragedy is a risk under open access, not a certainty, and it depends on the rules in place [1]. [8] Examiner insight: Finish with a verdict and name the condition it rests on. Criticisms piled up without a conclusion leave the question unanswered.

11. (a) The sandpit supplies up to 4 units [1], because unit 4 costs it 16, equal to what buyers pay, and unit 5 costs 18 against 14 [1]. (b) Cost to society = sandpit cost + 3: 13, 15, 17, 19 for units 1 to 4 [1]. Unit 3: value 18 is above 17, so it adds to welfare [1]. Unit 4: value 16 is below 19, so it reduces welfare. Best = 3 units [1]. (c) Unit 4 is worth 16 and costs society 19, a net loss of 3 [1]. So stopping at 3 gives a gain of 3 [1]. (d) The external cost of 3 may be hard to measure, so the best output may differ [1]. Dust damage might vary with how many units, or with weather, so a flat 3 is an assumption [1]. Even so, the sandpit’s own margin at unit 4 is zero, so any positive external cost makes unit 4 a net loss: output of 4 is too high unless the dust causes no harm at all [1]. [10] Examiner insight: For an evaluation of a number, say how sure you are of the input. Testing how far the cost could change before the answer flips is a strong approach.

Where marks are usually lost

• Writing that a public good is one the state provides, which describes a policy and not the good.
• Listing “non-rival and non-excludable” without explaining either in the context.
• Skipping the free-rider link when asked why a firm will not supply.
• Moving the wrong curve, or moving it the wrong way.
• Dividing by the wrong quantity in a percentage.
• Not stating the units or what the numbers measure.
• Describing a problem with no consequence for output or welfare.
• Evaluation that lists points but ends with no judgement.

Next steps

• Next, the revision notes, then the study guide.
• Course hub: OxfordAQA A-level Economics, and the checklist.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Source: the specification for OxfordAQA’s International AS and A-level Economics course, code 9640, version 1.2. First teaching was September 2020, the first AS exams were May/June 2021 and the first A-level exams were May/June 2022. Covered here: 3.1.5.1, 3.1.5.2 and 3.1.5.3.