15

Government aims and influences

Exam practice (p. 164)

1 Public goods are non-excludable and non-rivalry in consumption, i.e. firms
cannot prevent those who dont pay from consuming the products and their
consumption does not diminish the amount available to others. Examples include
street lighting and public roads. Merit goods are those that yield external benefits
from consumption, i.e. society benefits more than the private individual. Examples
include education and health care. Whilst both are possibly provided by the
government for the benefit of society, their characteristics make them different.
2 Reasons why a government might provide public goods and merit goods include:
l Private sector firms are highly unlikely to provide public goods as they are non-
excludable, i.e. those who do not pay still get to use the good or service.
l Merit goods tend to be under-consumed if the government does not
intervene.
l There are positive externalities created by consuming merit goods and public
goods, i.e. it prevents market failure.
Accept any other reasonable point that is analysed in the context of the question.
Award 12 marks for a brief answer that shows limited understanding.
Award 34 marks for an analysis that shows some understanding of the reasons
why a government might choose to provide public goods and merit goods.
Award 56 marks for a detailed analysis and understanding of the reasons why a
government might choose to provide public goods and merit goods.

Activity (p. 165)

Students own answers from their research. Employment laws that might be
researched include:
l equal opportunities
l anti-discrimination
l working hours
l maternity (and paternity) rights
l minimum wage legislation.

Activity (p. 166)

Students own research findings. Protection of intellectual property rights helps to
safeguard the interest of the firm whilst also acting as a barrier to entry for rivals
considering entering the industry.

Exam practice (p. 167)

1 A subsidy is a form of financial assistance from the government to lower the
production cost and hence the price of a good or service. In the case study, the
rents paid by retailers located in the MTR stations are used to subsidise travellers
on the MTR such as children and elderly.

Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 1

 15 Government aims and influences

2 The Hong Kong government might choose to subsidise public transport systems
such as the MTR because:
l This helps to reduce the price of using public transport to those with less ability
to pay, i.e. children and the elderly.
l It encourages more people to use public transport rather than private
transport. This reduces traffic congestion and delays on the roads.
l It can help to protect the natural environment as private transport causes far
more damage.
Award 12 marks for an answer that shows limited understanding.
Award 34 marks for a detailed explanation of why the government might
subsidise the provision of public transport.

Exam practice (p. 168)

1 Economic growth refers to an increase in the gross domestic product (national
output) of a country over time.
Unemployment refers to the non-use of a factor of production such as labour. It
occurs when people who are willing and able to work cannot find employment.
2 The control of inflation is a key macroeconomic objective because:
l Inflation increases the cost of living for all members of society.
l It reduces the international competitiveness of the country.
l Higher average prices reduce the level of aggregate expenditure in the
economy.
l All this results in reduced economic growth and unemployment.

Award 12 marks for an answer that shows limited understanding.

Award 34 marks for a detailed explanation of why the control of inflation is a
key macroeconomic objective.

Exam practice (p. 169)

1 Income equality refers to minimal differences, if any, in the distribution of earnings
between individuals. It is associated with the idea of fairness. For example, male
and female workers are paid the same for equal work due to the belief in equality.
2 Reasons why a government might want to redistribute income within its country
include:
l It reduces income and wealth inequalities; poorer people are more affected by
unemployment as they lack sufficient savings and wealth.
l A fairer distribution of income enables basic needs, including access to
education and health care, to be met for everyone in society.
l It also helps to improve the standard of living for a large proportion of the
society.
l Unemployment is a major cause of poverty and social deprivation in the
economy.
l Economic growth does not mean that everyone benefits in the same way,
e.g. the 521 British bankers get richer but the poor/unemployed get poorer,
creating a widening gap between rich and poor.
Accept any other suggestion that is adequately explained.
Award 12 marks for an answer that shows limited understanding.
Award 34 marks for a detailed explanation of why a government might want to
redistribute income within its country.

Cambridge IGCSE and O Level Economics Hodder & Stoughton 2013 2