Efficiency and market failure
7.3What the syllabus asks of you
- definitions of productive efficiency and allocative efficiency
- conditions for productive efficiency and allocative efficiency
- Pareto optimality
- definition of dynamic efficiency
- definition of market failure
- reasons for market failure
Drill this topic
Every question on Efficiency and 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.
33 questions
1May / June 2026 · Paper 34 · Q7Show mark scheme →
Adownward shift
Bmovement to the left
Cmovement to the right
Dupward shift
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2Oct / Nov 2025 · Paper 31 · Q5Show mark scheme →
Aoffering bulk-buy discounts to customers who join a loyalty scheme
Bswitching labour from producing low-priced products to producing high-priced products
Cswitching production from labour-intensive products to capital-intensive products
Dtraining low-skilled workers to operate machinery effectively
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3Oct / Nov 2025 · Paper 33 · Q1Show mark scheme →
Ato achieve an equal distribution of income
Bto achieve full employment
Cto ensure resources are not wasted
Dto ensure international competitiveness
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4Oct / Nov 2025 · Paper 33 · Q8Show mark scheme →
Awhere average revenue equals average cost
Bwhere average revenue equals marginal cost
Cwhere marginal revenue equals marginal cost
Dwhere marginal revenue is zero
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5Oct / Nov 2025 · Paper 34 · Q6Show mark scheme →
Aprice volatility
Ba large current account deficit
Ca regressive taxation system
Dfull employment
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6May / June 2025 · Paper 32 · Q2Show mark scheme →
Awhen a perfectly competitive market is in equilibrium
Bwhen everybody who needs the product can obtain it
Cwhen firms produce at the lowest possible cost
Dwhen monopolistic firms make normal profits
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7Feb / March 2025 · Paper 32 · Q2Show mark scheme →
Aa firm incurring a loss by selling goods at prices below the average cost
Ba guaranteed price that results in the accumulation of unsold stocks
Clow income earners being unable to buy high-priced goods
Dunder-provision of a socially desirable good
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8Oct / Nov 2024 · Paper 33 · Q3Show mark scheme →
Awhen the cost of producing the last extra unit equals the value the consumers place on it
Bwhen the cost of producing the last extra unit is at a minimum
Cwhen the total cost of production equals the value that consumers place on the total product
Dwhen the total revenue reaches a maximum
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9Oct / Nov 2023 · Paper 31 · Q8Show mark scheme →
Aa downward move to the minimum point of a long-run average cost curve
Ba downward shift in the long-run average cost curve
Ca move from a point inside a production possibility curve to a point on it
Da reduction in marginal revenue so that it equals long-run marginal cost
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10Oct / Nov 2023 · Paper 33 · Q10Show mark scheme →
Awhen negative externality lowers the utility of an individual
Bwhen consumption of a good is non-rival
Cwhen reallocation of resources can make someone better off without making any other person worse off
Dwhen trade takes place to make one nation better off at the expense of its trading partner
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11May / June 2023 · Paper 31 · Q2Show mark scheme →
A2, 5, 11, 18
B4, 5, 9, 18
C4, 4, 10, 18
D6, 6, 6, 18
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12May / June 2023 · Paper 31 · Q4Show mark scheme →
Aallocative
Bdynamic
CPareto
Dproductive
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13May / June 2023 · Paper 33 · Q2Show mark scheme →
Aconsumer 1: 2, consumer 2: 5, consumer 3: 11, total: 18
Bconsumer 1: 4, consumer 2: 5, consumer 3: 9, total: 18
Cconsumer 1: 4, consumer 2: 4, consumer 3: 10, total: 18
Dconsumer 1: 6, consumer 2: 6, consumer 3: 6, total: 18
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14May / June 2023 · Paper 33 · Q4Show mark scheme →
Aallocative
Bdynamic
CPareto
Dproductive
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15Feb / March 2023 · Paper 32 · Q4Show mark scheme →
AEntry barriers are reduced to increase competition in the market.
BFirms are legally bound to produce where price equals marginal cost.
CTaxes on profits are raised to encourage firms to produce where price equals average cost.
DTaxes on retained profits are reduced to encourage investment in new technology.
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16Feb / March 2023 · Paper 32 · Q10Show mark scheme →
Adecrease production of the good, decrease price of the good
Bdecrease production of the good, increase price of the good
Cincrease production of the good, decrease price of the good
Dincrease production of the good, increase price of the good
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17Oct / Nov 2022 · Paper 31 · Q1Show mark scheme →
AIndividuals are the best judges of their own well-being.
BIndividuals can be relied upon to behave rationally.
CThe distribution of income is socially optimal.
DThe economy's resources are allocated efficiently.
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18Oct / Nov 2022 · Paper 32 · Q1Show mark scheme →
Aa higher market concentration ratio
Bcollusion between firms in the market
Centry of new firms into the market
Dmergers of firms in the market
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19Oct / Nov 2022 · Paper 33 · Q1Show mark scheme →
Aat a level of output that is productively and allocatively efficient
Bwhen everyone has equal amounts of goods and services
Cwhen social benefits are greater than private benefits
Dwhen social marginal benefit is greater than social marginal cost
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20May / June 2022 · Paper 13 · Q9Show mark scheme →
AProducers can maximise their collective interest.
BConsumers and producers must have perfect knowledge.
CThe government must be able to apply maximum and minimum prices.
DThe value of the price elasticity of supply must be greater than one.
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21May / June 2022 · Paper 31 · Q1Show mark scheme →
AAll consumers maximise their utility subject to their available income.
BIt is not possible to produce greater output with the resources available.
CIt is not possible to reallocate resources to make someone better off without someone else becoming worse off.
DPotential losers from any reallocation of resources cannot be compensated by those who gain.
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22May / June 2022 · Paper 31 · Q13Show mark scheme →
Aimperfect information
Bincome inequality
Cmonopoly
Dnon-excludability
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23May / June 2022 · Paper 32 · Q2Show mark scheme →
Aaverage revenue
Baverage total cost
Ctotal revenue
Dtotal cost
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24May / June 2022 · Paper 32 · Q3Show mark scheme →
Agovernment expenditure on enterprise education
Breinvestment of profits
Crising shareholder dividends
Dthe increase in innovation
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25May / June 2022 · Paper 33 · Q1Show mark scheme →
AAll consumers maximise their utility subject to their available income.
BIt is not possible to produce greater output with the resources available.
CIt is not possible to reallocate resources to make someone better off without someone else becoming worse off.
DPotential losers from any reallocation of resources cannot be compensated by those who gain.
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26May / June 2022 · Paper 33 · Q13Show mark scheme →
Aimperfect information
Bincome inequality
Cmonopoly
Dnon-excludability
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27Feb / March 2022 · Paper 32 · Q1Show mark scheme →
AFirms succeed in maximising profits.
BProduction causes no external costs or benefits.
CThe distribution of income and wealth is perfectly equal.
DThe resources of the economy are allocated efficiently.
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28Oct / Nov 2021 · Paper 31 · Q1Show mark scheme →
Awhen it is not possible for some people to become better off without others becoming worse off
Bwhen it is possible to produce greater output with the same quantity of inputs
Cwhen resources have spare capacity
Dwhen resources can be re-allocated and total consumer satisfaction can be increased
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29Oct / Nov 2021 · Paper 32 · Q1Show mark scheme →
AIt is not possible to increase profits by changing the level of production.
BIt is not possible to make anyone better off without others becoming worse off.
CIt is not possible to produce the level of output at a lower unit cost.
DIt is not possible to produce outside the production possibility curve.
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30May / June 2021 · Paper 31 · Q2Show mark scheme →
Aallocative efficiency: no; dynamic efficiency: no
Ballocative efficiency: no; dynamic efficiency: yes
Callocative efficiency: yes; dynamic efficiency: no
Dallocative efficiency: yes; dynamic efficiency: yes
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31May / June 2021 · Paper 33 · Q2Show mark scheme →
Aallocative efficiency: no; dynamic efficiency: no
Ballocative efficiency: no; dynamic efficiency: yes
Callocative efficiency: yes; dynamic efficiency: no
Dallocative efficiency: yes; dynamic efficiency: yes
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32Feb / March 2021 · Paper 32 · Q1Show mark scheme →
Aallocative
Bdynamic
CPareto
Dproductive
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33Feb / March 2021 · Paper 32 · Q13Show mark scheme →
AIt will set price at W and make sub normal profit.
BIt will set price at X and the firm will make supernormal profits.
CIt will set price at Y and make normal profits.
DIt will set price at Z and make a loss.
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