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EnglandEconomics

Component 1: Microeconomics - Market failure and government intervention

5 dot points across 5 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How do externalities cause the free market to over-produce or under-produce relative to the social optimum?

1.3 Externalities: positive and negative externalities of production and consumption, the divergence of private and social costs and benefits, the welfare loss, and the social optimum.
An OCR H460 answer to externalities, covering positive and negative externalities of production and consumption, the divergence of private and social costs and benefits, the welfare loss triangle, and how the social optimum differs from the free-market outcome.
11 min answer →

When does correcting market failure backfire, leaving society worse off through government failure?

1.3 Government failure: the causes of government failure including distorted price signals, unintended consequences, information gaps and administrative costs, and the case for and against intervention.
An OCR H460 answer to government failure, covering why intervention to correct market failure can leave society worse off, through distorted price signals, unintended consequences such as black markets, government information gaps and excessive administrative costs.
10 min answer →

How do information gaps and the merit and demerit distinction cause markets to misallocate resources?

1.3 Information failure: imperfect and asymmetric information, moral hazard and adverse selection, and merit and demerit goods leading to under-consumption or over-consumption.
An OCR H460 answer to information failure, covering imperfect and asymmetric information, adverse selection and moral hazard, and how merit goods are under-consumed and demerit goods over-consumed because individuals misjudge their true costs and benefits.
10 min answer →

Why does the free market fail to provide public goods at all, and what makes a good public?

1.3 Public goods: the characteristics of non-rivalry and non-excludability, the free-rider problem, quasi-public goods, and why public goods cause complete market failure.
An OCR H460 answer to public goods, covering the defining characteristics of 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.
9 min answer →

How do indirect taxes, subsidies, price controls and tradable permits correct market failure, and who bears the burden?

1.3 Methods of intervention: indirect taxes and subsidies, the incidence of tax and elasticity, maximum and minimum prices, tradable pollution permits, regulation, state provision and information provision.
An OCR H460 answer to government intervention methods, covering indirect taxes and subsidies, the incidence of an indirect tax and how elasticity splits the burden, maximum and minimum prices, tradable pollution permits, regulation, state provision and information provision.
12 min answer →