Essay 1 on the 2022 AQA A level economics paper 1 questioned whether high speed internet connection should be provided, free of charge to all households. Here is a model answer which addresses this question:
High-speed internet connection may be deemed as a merit good with positive externalities in consumption which would be underprovided if left to the market mechanism. Positive externalities are third party effects which benefit agents not directly involved in an economic transaction. High speed internet could provide benefits to third parties such as the economy, by improving access to educational materials online and therefore the full social benefit of consumption is greater than the private benefit. We can show this effect using a diagram, with MSB being greater and therefore further to the right than MPB (the market demand curve).
The result is that the market equilibrium would provide quantity Q, however the socially optimal level of consumption would be at Q* - high speed broadband is underconsumed by the difference between Q and Q*. This makes the main argument that broadband should be provided by the government in order to address this underconsumption.Having said this, it could be argued that there are negative externalities in both production and consumption here as well. High speed broadband provides access to undesirable content (for example to children) online. There may also be environmental concerns with laying the cables and therefore governments should be cautious of providing it to all households free of charge without considering these third party costs.
A further argument for providing high speed internet free of charge is to tackle the market failure caused by inequalities. The case says that low-income households are facing choices between internet and essentials such as food. If these decisions are being made it is evidence that the poorest in society are unable to meet basic needs, which is not only morally undesirable, but will also have negative impacts on the wider economy. Those who are unable to afford these necessities are unlikely to be as productive in contributing to the labour force which will reduce the productive capacity of the economy. By providing a key service such as broadband, this will remove some of the tough choices for those in poverty and allow them to contribute more productively.However, providing free high speed broadband to all households would be incredibly costly. Governments should consider the opportunity cost of a decision like this – what is the next best alternative which is being given up in order to fund such a policy? Examples may include healthcare, education or spending on military defence, which is becoming increasingly important in the current geopolitical climate.
There may also be issues with resource allocation, which are likely if governments totally overhaul the workings of the market mechanism. The market forces of supply and demand help to answer questions like what exactly should be produced and for whom? The rationing, signaling and incentive functions of prices tell consumers and producers about how resources should be used. The government is blind to this information and therefore unlikely to make efficient choices in prioritizing internet access.
Overall, I do not think that governments should provide high speed internet free of charge to all households. While it is a nice idea which would undoubtedly present significant benefits, I would be too concerned about the opportunity cost. I would argue that money spent on this policy would be better invested into a crumbling NHS, in order to improve the health of the nation. This would also help to tackle the issue of inequality by improving health outcomes for those in poverty. Having said this, it would depend on the overall cost of the policy, which is unclear from the question – a full cost benefit analysis on the issue, including all private AND external costs and benefits would be sensible before drawing any final conclusions.
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