Market failure and government intervention - OCR A-Level Economics (H460) overview

The market-failure-and-intervention module of OCR A-Level Economics (specification H460) explains why competitive markets can misallocate resources and how governments try to put it right, while risking government failure. It is one of the richest sources of evaluation marks in the course. This page maps the dot points and how they are examined.

The dot points in this module

Externalities and market failure

Positive and negative externalities of production and consumption, the divergence of private and social costs and benefits, the social optimum where marginal social benefit equals marginal social cost, and the welfare-loss triangle.

Public goods and the free-rider problem

Non-rivalry and non-excludability, the free-rider problem, quasi-public goods, and why pure public goods cause complete market failure and are funded by the state.

Information failure and merit goods

Imperfect and asymmetric information, adverse selection and moral hazard, and how merit goods are under-consumed and demerit goods over-consumed.

Government intervention and government failure

The causes of government failure: distorted price signals, unintended consequences, information gaps, administrative costs and regulatory capture, and the balanced case for intervention.

Taxes, subsidies and price controls

Indirect taxes and the incidence of a tax, subsidies, maximum and minimum prices, tradable pollution permits, regulation, state provision and information provision.

How this module is examined

OCR Economics is a two-year linear course with three papers at the end. This module is examined mainly in Component 1 (Microeconomics), an 80-mark, 2-hour paper using data-response questions and a chosen extended-response essay of up to 25 marks. The content also appears synoptically in Component 3 (Themes in economics). Higher-mark questions are marked by levels of response, rewarding accurate diagrams and a balanced evaluation that weighs intervention against the risk of government failure.

How to study this module

1. Master the diagrams. The four externality diagrams and the price-control diagrams recur constantly; practise drawing the welfare-loss triangle accurately.
2. Practise tax-incidence calculations. Link the consumer and producer shares of a tax to elasticity.
3. Build evaluation lines. For every intervention, weigh the benefit against the risk of government failure.
4. Use real examples. The sugar tax, the energy price cap, minimum alcohol pricing and the Emissions Trading Scheme make application marks easy.

Work through the dot points

Each dot point has its own focused answer page with worked exam questions and cross-links: externalities and market failure; public goods and the free-rider problem; information failure and merit goods; government intervention and government failure; and taxes, subsidies and price controls.

For the official specification

OCR publishes the full specification (H460), past papers and mark schemes at ocr.org.uk. Always revise from the current specification and OCR's own past papers, because the question style and the levels-of-response mark schemes are board-specific.