Market Failure and Government Intervention

What Market Failure and Government Intervention covers

Market Failure and Government Intervention is examined in Microeconomics — assessed across all three components. It covers market failure and economic efficiency, externalities, welfare loss and the socially efficient output, public goods, free riding and property rights, merit goods, demerit goods and information failure, monopoly power, factor immobility and volatile prices, taxation, subsidies and tradable pollution permits, regulation, state provision and information provision, maximum and minimum prices in agriculture, housing and labour and government failure and distortions in markets.

The 10 subtopics

Each one has its own page.

• Market failure and economic efficiencyMarket failure, allocative efficiency and missing market.Open →
• Externalities, welfare loss and the socially efficient outputPrivate cost, external cost and relationship between private benefit, external benefit and social benefit.Open →
• Public goods, free riding and property rightsPublic good, free rider problem and common access resource.Open →
• Merit goods, demerit goods and information failureMerit good, information failure and asymmetric information in a product market.Open →
• Monopoly power, factor immobility and volatile pricesOccupational immobility of labour, geographical immobility of labour and cobweb effect.Open →
• Taxation, subsidies and tradable pollution permitsIndirect tax, pigouvian tax and how a tradable pollution permit scheme works.Open →
• Regulation, state provision and information provisionRegulation as a policy tool, command and control regulation and state provision.Open →
• Maximum and minimum prices in agriculture, housing and labourMaximum price, minimum price and national minimum wage.Open →
• Government failure and distortions in marketsGovernment failure, unintended consequence of intervention and law of unintended consequences.Open →
• Income inequality as a market failureWhy inequality counts as a market failure, its causes in the UK, measuring it with the Gini coefficient, Lorenz curves, means, medians and quantiles, its consequences for households, firms and government, and policies to reduce it.Open →

What you need to know

Answer each one before you reveal it.

Take Market Failure and Government Intervention further

The same content, four other ways.

Questions from this topic

Each one with the model answer underneath.

1. 1

   Define market failure.

   Model answer

   Market failure occurs when a free market allocates resources inefficiently. The quantity produced differs from the quantity that would maximise society's welfare.

2. 2

   Distinguish complete market failure from partial market failure.

   Model answer

   Complete market failure occurs when a market does not exist at all, leaving a missing market. Partial market failure occurs when a market exists but delivers the wrong quantity.

3. 3

   What is allocative efficiency?

   Model answer

   Allocative efficiency occurs where price equals marginal cost, so output matches consumer preferences. A reallocation of resources could not then make one person better off without harming another.

4. 4

   Why is total surplus maximised at the free market equilibrium in a market with no externalities?

   Model answer

   At the equilibrium every unit whose value to a buyer exceeds its cost to a seller is traded. Extra units would cost more than they are worth, and fewer units would forgo gains.

5. 5

   How does consumer surplus measure the welfare consumers gain from a market?

   Model answer

   Consumer surplus measures the gap between what buyers would have paid and what they did pay. The gap is the area below the demand curve and above the market price.

6. 6

   How does producer surplus measure the welfare producers gain?

   Model answer

   Producer surplus measures the gap between the price received and the minimum a seller would accept. The gap is the area above the supply curve and below the market price.

What is inside Levo

Six ways to work the same material.

Market Failure and Government Intervention revision questions

What does Market Failure and Government Intervention cover in Eduqas A-Level Economics?

10 subtopics: market failure and economic efficiency, externalities, welfare loss and the socially efficient output, public goods, free riding and property rights, merit goods, demerit goods and information failure, monopoly power, factor immobility and volatile prices, taxation, subsidies and tradable pollution permits, regulation, state provision and information provision, maximum and minimum prices in agriculture, housing and labour, government failure and distortions in markets and income inequality as a market failure. Each one has its own page with questions and model answers.

How is Market Failure and Government Intervention organised?

By the Eduqas A520QS specification, subtopic by subtopic, so it matches the order you are taught it in.