Quiz 1: Case study Evidence A 1 of 3 1. How might we understand the concept of a ‘Public Service’ broadcaster in traditional economic terms? As the provider of a merit good. The ‘public service’ points towards a broad benefit for society as a whole, not just the immediate viewers. 2. Why might it be difficult to say how great or small these benefits are? Educational programming and the political and social benefits of impartial news channels provide benefits over the long-term. These will be extremely difficult to measure as so many other factors will come into play in determining viewers’ outlook on life.

Evidence A 2 of 3 3. Why is the ‘compulsory annual licence fee’ a regressive tax? Because every household with a television pays the same size of licence fee, poor households pay a higher proportion of their income than rich ones. This is the definition of a regressive tax. 4. What features of the Licence Fee makes it less regressive than a simple tax per person? Households where one occupant is over 75 do not have to pay it. And the elderly are more likely to be poor Large families are also more likely to be poor, yet only need the one licence while deriving more benefit from it

Evidence A 3 of 3 5. What other examples are there of Sky’s and Virgin’s business model, whereby income is generated by both direct purchases of the product and also advertising? Newspapers: most rely on both a cover price and advertising revenue Online stores, which will often take advertisements as well as direct payment for goods Public transport, which sells tickets and also sells advertising space

Evidence B 1 of 3 6. How does Evidence B illustrate the chain of distribution? Some of its partners such as National Geographic and Discovery Channel are pure content providers. YouTube acts like a shop: it is the means by which the product is delivered to the final customer. 7. Why then don’t we have to pay to watch these channels on YouTube? They are funded by advertising, and also act as a ‘shop window’ to lead interested viewers to Pay-TV websites where they will have to pay.

Evidence B 2 of 3 8. Why might advertisers prefer ‘pre-roll’ advertisements to the traditional ‘alongside’ advertisement? They are much harder to ignore. 9. What is the danger of too many lengthy pre-roll advertisements for YouTube? They will damage the willingness of viewers to use the site.

Evidence B 3 of Why challenge does YouTube present to conventional TV networks, such as those mentioned in Evidence A? YouTube provides the same basic product, namely video content. Enormous quantities are available ‘on demand’ Its online presence is of immense importance as average hours spent in front of a PC continue to grow It may reach a ‘critical mass’, where it contains so much of the video people want to watch that it becomes the ‘default’ platform in most people’s minds

Quiz 2: Specification linked to broadcast media industry This quiz requires knowledge of the case study, the Unit 4b specification and some relevant facts about the broadcast media industry

What market failure means 1 of 2 1. Is broadcast media a merit or demerit or public good – or none of these? It depends on the type of broadcasts. Those with (for example) an educational content count as merit goods; but too much general viewing has an adverse health impact and counts as a demerit good. 2. Will the free market allocation of resources to the broadcast media industry be too small, too great or optimal? It could be either, but will probably not contain enough of a ‘public service’ nature.

What market failure means 2 of 2 3. What other categories of market failures are there? 1. Monopoly power – in the absence of competition, the free market allocates too few resources to the industry. 2. Information asymmetry – consumers make poor buying choices because they know less about what they are buying than the producers. 3. Inequality – free markets generate a much higher degree of inequality than most people find acceptable.

What externalities are and how they affect an economy 1 of 2 4. If the production or consumption of a good leads to damage to the environment in its widest sense e.g. climate change, increased noise, worse health or the closure of other businesses – then these are known as... External costs. 5. Equally, if the production or consumption of a good leads to benefits for anyone other than the buyer or the seller, then these are known as... External benefits.

What externalities are and how they affect an economy 2 of 2 6. Over what time period do external costs occur? Any – biased broadcasting might unduly influence an election result, the adverse health consequences of watching too much TV could take decades to emerge. 7. Why is it difficult to measure the size of external costs? Since no-one is paying for them directly, it is extremely difficult to quantify them. For localised externalities like a new polluting factory, changes in house prices provide an estimate.

To what extent are externalities acceptable? 1 of 2 8. Is the best way of dealing with demerit goods to stop producing them altogether to eliminate the external costs they generate? No: demerit goods also produce very considerable benefits which need to be factored into the equation. 9. Then by what amount should production be reduced? By the amount that production would fall if consumers had to pay for the full cost, both private and external, that the good generates.