A local council has reviewed four services that households may buy: a measles immunisation, a streaming subscription, designer trainers and a restaurant mea...

Assessment: Economics 9214 | Paper 1 Mock 01 | Written Paper 1 Subject: Economics - 9214

Question 1 Report

A local council has reviewed four services that households may buy: a measles immunisation, a streaming subscription, designer trainers and a restaurant meal. The council is deciding whether to reduce the price paid by consumers for one service because its consumption may create wider economic benefits.

(a) Which one of the four services is most likely to be a merit good? [1]
(b) State one benefit to people other than the consumer when demand for this service rises. [1]
(c) Explain why the market supply and demand outcome may result in too little of this good being consumed without government action. [2]
(d) Explain one way in which the council could increase consumption of the merit good. [2]

Answer Details

(a) A measles immunisation is most likely to be a merit good. Merit goods create benefits that consumers may undervalue and which can extend beyond the consumer. [1]

(b) One external benefit is a lower risk that other people will catch measles. This benefit is received by people other than the immunised consumer. Reduced pressure on hospitals or fewer workdays lost are also valid. [1]

(c) A consumer deciding whether to pay for immunisation may consider mainly their private benefit. They may not fully take account of the protection given to other people through lower infection risk. As a result, market demand and the quantity consumed are below the socially efficient level. [2]

(d) The council could subsidise or provide free immunisations. This lowers the price paid by consumers, making immunisation more affordable and increasing quantity demanded and consumed. Providing information about health benefits, or requiring immunisation for specified activities, could also increase consumption if explained. [2]

Exam focus: merit goods are under-consumed because private choices may ignore external benefits.

Read lesson note on Market Failure (OxfordAQA)
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