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EnglandEconomics

Microeconomics: Market failure and government intervention

4 dot points across 4 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How do externalities cause markets to misallocate resources, and what does this mean for the environment?

Externalities and the environment: positive and negative externalities in production and consumption, private and social costs and benefits, the welfare loss from market failure, and environmental market failure.
An Eduqas A520 answer to externalities, covering positive and negative externalities in production and consumption, the distinction between private and social costs and benefits, the deadweight welfare loss when marginal social cost differs from marginal social benefit, and why environmental problems are a classic market failure.
12 min answer →

What tools can governments use to correct market failure, and when does intervention make things worse?

Government intervention and government failure: indirect taxes and subsidies, maximum and minimum prices, regulation, tradable pollution permits and state provision, and the causes of government failure.
An Eduqas A520 answer to the policy toolkit for correcting market failure, covering indirect taxes and subsidies, maximum and minimum prices, regulation, tradable pollution permits, state provision and information provision, and the causes of government failure such as unintended consequences, information gaps and regulatory capture.
13 min answer →

How do monopoly power and an unequal distribution of income count as market failures, and how are they measured?

Monopoly power and inequality as market failures: the welfare costs of monopoly power, factor immobility, the distinction between equity and equality, and the measurement of inequality using the Lorenz curve and Gini coefficient.
An Eduqas A520 answer to monopoly power and inequality as causes of market failure, covering the welfare costs of monopoly and the abuse of market power, factor immobility, the difference between equity and equality, and how inequality is measured with the Lorenz curve and the Gini coefficient.
12 min answer →

Why do markets fail to provide public goods, and how does asymmetric information distort markets?

Public goods and information failure: non-rivalry and non-excludability, the free-rider problem, merit and demerit goods, and asymmetric information and moral hazard as causes of market failure.
An Eduqas A520 answer to public goods and information failure, covering non-rivalry and non-excludability, the free-rider problem and the missing market for pure public goods, merit and demerit goods, and how asymmetric information, moral hazard and adverse selection cause markets to misallocate resources.
12 min answer →