Revision Package 2,

Essay Q1

1 (a Explain whether public

[10
. ) housing is considered an
]
example of a public good or a
merit good.
Focus: characteristics and classification
of public goods, merit goods
Skill: Explain differences, distinguish,
compare
Context: none

Show how public

housing does not
meet the
characteristics of
public goods but

Introduction
beginning of essay

Definitions:
Public goods and merit goods
Public housing: is a form ofhousing tenurein
which the property is owned by
agovernmentauthority. (In Singapore, HDB
leases HDB flats on 99 year leases)

Overview of essay: Classify

- Public housing is a merit good as it is excludable
and rivalrous (therefore not public) and produces
positive externalities

Body
explaining and classifying

Point 1: Public goods are nonexcludable while merit goods are

excludable.

Define non-excludable
Illustrate with an example (e.g. street
lighting, national defence, traffic lights)
Explain how public housing is
excludable not a public good

Body
explaining and classifying

Point 2: Public goods are non-rival

while merit goods are rival.

Define non-rival
Illustrate with an example (e.g. street
lighting, national defence, traffic lights)
Explain how public housing is rival
not a public good

Body
explaining and classifying

Point 3: Public goods will not be

provided by the free market while
merit goods will be, although underproduced or under-consumed (no
resources allocated versus underallocation)

Body
explaining and classifying

Non-excludable free-riders no
revealed demand no price signals no
demand for public goods

Non-rival For an additional user, MC = 0

Under Allocative Efficiency, P = MC = 0
private firms will not provide no
supply for public goods

Missing market, no resources allocated

Body
explaining and classifying

Merit goods generates positive

externalities (more sanitary conditions
leading to less medical costs, population
growth leading to economic growth)

Pursuit of self-interest only (MPC, MPB,

examples)
(versus) Societys interest and welfare
(MSC, MSB = MPB + MEB)

Body
explaining and classifying

Diagram and explanation

Market versus socially optimal outcome
Under-consumption of public housing
by QmQs, under-allocation of
resources, welfare loss Market fails

Conclusion
- summarize, link to part b?

Public housing is excludable and rival,

and generates positive externalities
deemed socially desirable by
governments not a public but a
merit good!
Some scope for government
intervention to lead to a more efficient
allocation of resources (part b)

(b) Discuss whether government

intervention can lead to a more
efficient allocation of resources
where goods with externalities
exist in markets.

[15
]

Focus: resource allocation for goods with

positive and negative externalities
Skill: Discuss how far, yes/no (thesis, antithesis)
Context: none, use public housing as an
example
Can government intervention reduce market
failure arising from positive and negative

Introduction
beginning of essay

Define:
more efficient allocation of resources:
allocative efficiency, P=MC, MSC = MSB
Externalities
Overview: In this essay, I will explain
how government intervention can lead
to a more efficient allocation of
resources as well as some conditions
that lead to government failure.

Body
explaining and classifying

Point 1: Cause for intervention.

The existence of both positive and

negative externalities will lead to
market failure, where the market fails
to allocate the goods efficiently.
Explanation of how negative
externalities leads to market failure
(with an example)

Body
explaining and classifying

Point 2: Intervention in
markets with negative
externalities for a more
efficient allocation.

Identify & define policy: taxes

What is it?
(or tradable permits or
legislation or education)
How does it
Explain how it works (with awork?
diagram)
Strengths and constraints How well does it

Body
explaining and classifying

Point 3: Intervention in markets

with positive externalities for a
more efficient allocation.

Identify & define policy:

subsidies (or legislation or
What is it?
education)
Explain how it works (with aHow does it
diagram)
work?
Strengths and constraints

How well does it

Conclusion / evaluation

So, can government intervention lead

to a more efficient allocation of
resources where goods with
externalities exist?

Depends on:
Effectiveness and suitability of policies
Context of country (state and
characteristics)