Market Failure Across the Economy | Edexcel A-Level Economics B (9EB0)

Market Failure Across the Economy

76 questions
5 subtopics
Theme 4: making markets work
Paper 1 and Paper 3

Market Failure Across the Economy is examined in Paper 1, Markets and how they work, and in Paper 3, The economic environment and business.

It covers merit and demerit goods, factor immobility and information failure, externalities and social costs and benefits, environmental externalities and environmental change and policies to correct market failure.

Sample questions from Market Failure Across the Economy

Answer each one closed book first, then open the answer.

Merit and demerit goods

Explain why information failure lies behind the under-consumption of merit goods.

Show the answer
People cannot easily judge a benefit that will arrive decades later, so they discount it heavily and spend on immediate wants instead.
Merit and demerit goods

How does addiction make the market for a demerit good fail?

Show the answer
Addiction makes demand highly inelastic and the choice no longer fully voluntary, so consumers keep buying even when they understand the harm.
Factor immobility and information failure

Why is capital sometimes immobile as well as labour?

Show the answer
Specialised machinery and buildings often have no alternative use, so they lie idle rather than being redeployed when demand shifts.
Factor immobility and information failure

What is asymmetric information?

Show the answer
Asymmetric information exists when one side of a transaction knows more than the other, which gives the better-informed side an advantage.
Externalities and social costs and benefits

What is social benefit?

Show the answer
Social benefit is the total benefit to society, equal to the private benefit to the consumer plus any external benefit received by third parties.
Externalities and social costs and benefits

Where does the marginal social cost curve lie relative to marginal private cost when there is a negative externality?

Show the answer
Marginal social cost lies above marginal private cost, separated at each output by the size of the external cost.
Environmental externalities and environmental change

Why do markets undervalue environmental damage that will occur far in the future?

Show the answer
Future costs are discounted heavily and fall on people who are not parties to today's transactions, so they carry no weight in today's price.
Environmental externalities and environmental change

How does a landfill tax internalise an environmental externality?

Show the answer
It raises the private cost of dumping waste towards its cost to society, which makes recycling and waste reduction cheaper by comparison.

The 5 subtopics

One subtopic is one session. Work down the list.

Subtopic	What it covers	Questions
Merit and demerit goods	Merit goods and examples, under-consumption and the consequences of under-provided healthcare and education, information failure and income, demerit goods and examples, the social consequences of alcohol over-consumption, addiction, sellers' incentives, demerit goods against goods harmful only to the buyer, merit goods as a value judgement, and effects on firms.	15
Factor immobility and information failure	Factor immobility, occupational and geographical immobility of labour and their causes in the UK, structural unemployment, immobile capital, lost efficiency, policies to reduce immobility, higher costs for firms, imperfect and asymmetric information, the second-hand car market, market failure, moral hazard, and closing the information gap with customers.	15
Externalities and social costs and benefits	Externalities, private, external and social costs and calculating social cost, social benefit, examples of negative and positive externalities in production and consumption, over-production and under-consumption, marginal social against marginal private cost on a diagram, welfare loss, internalising an externality, and setting a tax equal to the external cost.	16
Environmental externalities and environmental change	Environmental externalities from road transport, the atmosphere as a common resource and the tragedy of the commons, climate change as a global externality, undervalued future damage, overfishing, the consequences of environmental change for businesses and agriculture, regulation as a business opportunity, the polluter pays principle, landfill tax, valuing damage, growth against the environment, and greenwashing.	14
Policies to correct market failure	Public goods and the free rider problem, state provision of merit goods and its drawbacks, indirect taxes on demerit goods and inelastic demand, tradable pollution permits and their weakness, information provision, legislation against taxation, the short-term and long-term effects of a carbon tax, and why policies can fail over time.	16

Market Failure Across the Economy is 76 of the 2,933 questions in the guide.Get the guide, £8

How the guide is worked

Answering a question from memory stores it far better than reading the answer again. The guide runs that as a fixed procedure on one subtopic at a time, about twenty minutes a session.

Step 1 · Closed book
Cover the answers. Work through one subtopic and write down what you can. Leave blanks where you have nothing.
Step 2 · Open book
Go back to the top. Read each printed answer and write it out in full, including the ones you had right.
Step 3 · Closed book again
Same questions, same order, from memory. The gap between pass one and pass three is the session result.

Read the full method, the return schedule and the research behind it.