Market failure
2.9What the syllabus asks of you
- Definition of market failure
- Definitions of terms associated with market failure: public goods, merit goods, demerit goods, private benefits, external benefits, social benefits, private costs, external costs, social costs, monopoly
- Causes of market failure: causes relating to public goods, merit goods, demerit goods, external costs and external benefits, abuse of monopoly power
- Consequences of market failure: implications of misallocation of resources in relation to: the over-consumption of demerit goods and goods with external costs; the under-consumption of merit goods and goods with external benefits; the non-provision of public goods; restricted supply causing higher prices under a monopoly Note: demand and supply diagrams relating to market failure are not required.
Read the notes first
Chapter 2: Market failure
Drill this topic
Every question on Market failure, untimed, marked as you go.
Make a worksheet
Choose the years and how many questions, then print it with the answers on separate pages.
39 questions
1May / June 2026 · Paper 11 · Q8Show mark scheme →
Aa lack of information about the effects of a medicine
Bdifferent rates of interest offered by banks
Cqueues to buy tickets at concerts
Dseasonal variations in the prices charged for vegetables
Mark scheme
2May / June 2026 · Paper 11 · Q17Show mark scheme →
Aarmed forces
Bhousehold waste collection
Clibraries
Dsports facilities
Mark scheme
3May / June 2026 · Paper 12 · Q8Show mark scheme →
Aa demerit good
Ba free good
Ca merit good
Da public good
Mark scheme
4Oct / Nov 2025 · Paper 12 · Q9Show mark scheme →
A$12000 – $10000 = $2000
B$8000 – $5000 = $3000
C$12000 + $5000 = $17000
D$8000 + $12000 = $20000
Mark scheme
5May / June 2025 · Paper 12 · Q9Show mark scheme →
Ait is more beneficial to the consumer than they realise
Bit is overconsumed in the free market
Cit is underproduced in the free market
Dit provides external benefits
Mark scheme
6Oct / Nov 2024 · Paper 12 · Q9Show mark scheme →
Athe cost of importing construction materials
Bthe enjoyment lost by those unable to use the countryside
Cthe increase in profits for local businesses
Dthe wages paid to the construction workers
Mark scheme
7Oct / Nov 2024 · Paper 13 · Q9Show mark scheme →
Aprivate benefits minus private costs
Bprivate benefits plus social benefits
Csocial benefits minus private benefits
Dsocial benefits plus social costs
Mark scheme
8May / June 2024 · Paper 11 · Q9Show mark scheme →
Aa good which generates external benefits
Ba good with higher private costs than social costs
Ca good which is more harmful to consumers than they realise
Da good which provides no costs to third parties
Mark scheme
9May / June 2023 · Paper 11 · Q8Show mark scheme →
AConsumers in the free market only consider private costs and benefits.
BFace masks are non-rival and non-excludable.
CThere is abuse of monopoly power by the producer of face masks.
DThere is perfect information in the free market.
Mark scheme
10May / June 2023 · Paper 12 · Q8Show mark scheme →
Aan increase in revenue for the universities from fee-paying students
Ban increase in tax revenue from a more productive labour force
Can increase in graduate employment as a percentage of the working population
Dan increase in wages for graduates
Mark scheme
11Oct / Nov 2022 · Paper 12 · Q8Show mark scheme →
Ato address the problem of market failure
Bto discourage people from using public transport
Cto ensure the supply of transport through the free market
Dto obtain revenue from the levy of a toll
Mark scheme
12Oct / Nov 2022 · Paper 13 · Q8Show mark scheme →
AConsumers have complete information about goods.
BDisequilibrium continues in the market.
CMerit goods are under-supplied.
DSome goods are no longer demanded.
Mark scheme
13Oct / Nov 2022 · Paper 13 · Q23Show mark scheme →
APublic goods are always used by everyone.
BPublic goods are not profitable for private firms.
CPublic goods can only be provided by monopolies.
DPublic goods create large external costs.
Mark scheme
14May / June 2022 · Paper 12 · Q16Show mark scheme →
A$2390 million
B$5050 million
C$7440 million
D$33 940 million
Mark scheme
15Oct / Nov 2021 · Paper 12 · Q4Show mark scheme →
Aexcludable and non-rival in consumption
Bexcludable and rival in consumption
Cnon-excludable and non-rival in consumption
Dnon-excludable and rival in consumption
Mark scheme
16Oct / Nov 2021 · Paper 13 · Q4Show mark scheme →
Ahealthcare
Bstreet lights
Cunemployment benefits
Dvaccinations
Mark scheme
17May / June 2021 · Paper 11 · Q6Show mark scheme →
Ahigher cost of building cycle lanes
Bimproved physical fitness to the individual from cycling
Clower cost of cycling compared with driving to work
Dreduced congestion for other road users
Mark scheme
18Oct / Nov 2020 · Paper 12 · Q5Show mark scheme →
AConsumers may lack information about which good to buy.
BDemerit goods are underconsumed.
CPublic goods are overconsumed.
DMost resources are owned by the government.
Mark scheme
19May / June 2020 · Paper 11 · Q5Show mark scheme →
Aclear product information
Bhigh external costs
Chigh product taxes
Dlow customer demand
Mark scheme
20May / June 2020 · Paper 12 · Q5Show mark scheme →
Amany firms
Bmonopoly
Cprofit maximisation
Dspecialisation
Mark scheme
21May / June 2020 · Paper 12 · Q19Show mark scheme →
AIt is impossible to charge a price for defence.
BIt prevents individual citizens having access to weapons.
COnly governments can manufacture weapons.
DProviding defence is very expensive.
Mark scheme
22Oct / Nov 2019 · Paper 12 · Q5Show mark scheme →
Ahigh producer profits
Bhigh retail prices
Clack of competition
Dlow levels of investment
Mark scheme
23Oct / Nov 2019 · Paper 13 · Q5Show mark scheme →
Amarket distribution
Bmarket equilibrium
Cmarket failure
Dmarket structure
Mark scheme
24May / June 2019 · Paper 11 · Q5Show mark scheme →
Agovernment provision of services
Bsocial costs equal private costs
Cthe existence of external benefits
Dthe existence of perfect competition
Mark scheme
25May / June 2019 · Paper 12 · Q5Show mark scheme →
Abigger aircraft / higher fares
Bhigher fares / lower CO2
Cless catering waste / bigger aircraft
Dlower CO2 / less catering waste
Mark scheme
26Oct / Nov 2018 · Paper 12 · Q6Show mark scheme →
Aall the benefits of coal production minus all the costs of coal production
Bthe cost of the environmental damage caused by coal production
Cthe cost to the government of subsidising the coal industry
Dthe private costs of coal production plus the external costs of coal production
Mark scheme
27May / June 2018 · Paper 11 · Q6Show mark scheme →
Aexcess demand and public corporation
Bgovernment subsidies and perfect competition
Cmarket system and income distribution
Dprivate benefit and external cost
Mark scheme
28May / June 2018 · Paper 11 · Q19Show mark scheme →
Aa builder purchasing a plot of land for development of housing
Bgroups of suppliers of building materials agreeing to fix prices
Cseveral builders bidding for the same contracts
Dseveral builders using different sources of supply
Mark scheme
29May / June 2018 · Paper 12 · Q6Show mark scheme →
A$25 million
B$50 million
C$175 million
D$225 million
Mark scheme
30May / June 2018 · Paper 12 · Q19Show mark scheme →
Aa builder purchasing a plot of land for development of housing
Bgroups of suppliers of building materials agreeing to fix prices
Cseveral builders bidding for the same contracts
Dseveral builders using different sources of supply
Mark scheme
31Oct / Nov 2017 · Paper 12 · Q2Show mark scheme →
Abudget surplus; public sector
Bexternal cost; opportunity cost
Cgovernment subsidy; mixed economy
Dprivate enterprise; budget deficit
Mark scheme
32Oct / Nov 2017 · Paper 12 · Q5Show mark scheme →
Ahigher employment
Bhigher fixed costs
Cincreased production
Dincreased traffic congestion
Mark scheme
33Oct / Nov 2017 · Paper 13 · Q4Show mark scheme →
Athe cost of a bottle of wine
Bthe risk of illness from drinking alcohol
Cthe risk of street violence
Dthe tax paid to the government
Mark scheme
34May / June 2017 · Paper 11 · Q7Show mark scheme →
Aprivate cost decrease; private benefit uncertain; external cost uncertain
Bprivate cost increase; private benefit decrease; external cost increase
Cprivate cost increase; private benefit increase; external cost increase
Dprivate cost uncertain; private benefit increase; external cost increase
Mark scheme
35May / June 2017 · Paper 12 · Q6Show mark scheme →
AExternal benefits will fall and social costs will fall.
BExternal costs will rise and social benefits will fall.
CSocial costs and social benefits will fall.
DSocial costs and social benefits will rise.
Mark scheme
36Oct / Nov 2016 · Paper 12 · Q7Show mark scheme →
AAn international trade deficit has caused the country to be in debt.
BNational companies have borrowed from foreign investors.
CPrivate costs of production are less than social costs.
DPrivate costs of production are more than social benefits.
Mark scheme
37Oct / Nov 2016 · Paper 13 · Q7Show mark scheme →
ASocially efficient supply is S and the market price P is too high.
BSocially efficient supply is S and the market price P is too low.
CSocially efficient supply is S1 and the market price P is too high.
DSocially efficient supply is S1 and the market price P is too low.
Mark scheme
38May / June 2016 · Paper 11 · Q6Show mark scheme →
Aexternal cost and private benefit
Bincome distribution and inelastic demand
Cprivate investment and a decrease in supply
Dsocial benefit and perfect competition
Mark scheme
39May / June 2016 · Paper 12 · Q6Show mark scheme →
Aexternal cost and private benefit
Bincome distribution and inelastic demand
Cprivate investment and a decrease in supply
Dsocial benefit and perfect competition
Mark scheme