Explain the view that the best allocation of resources occurs when consumer surplus and producer surplus are maximized.

Discuss the implications of the direct provision of public goods by a government.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

• definitions of allocation of resources, consumer surplus, producer surplus
• diagram to show consumer and producer surplus being maximized
• explanation that resources are being used in the most efficient way when demand equals supply and the consumer surplus and producer surplus are maximized
• examples of goods and services that ensure resources are allocated efficiently. Any market example is acceptable.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.

Answers may include:

• definition of public goods
• a diagram is not required
• explanation that the non-rivalrous and non-excludable characteristics of public goods means they will not be provided by the free market and will need to be provided by the government
• examples of public goods
• synthesis or evaluation (discuss).

Discussion may include: consideration of the nature of public goods and whether they have to be provided by the government. The problems of providing public goods by the government, such as the opportunity cost of government spending and inefficient government provision.