AQA 3.1.5- Market Failure and Government Intervention

A market failure is best described as

• The idea that market forces of supply and demand always provide the maximum benefit for society
• The idea that market forces of supply and demand do not always provide the maximum benefit for society
• The concept that a decision made by one party can have negative effects on another party
• The concept that a decision made by one party can have positive effects on another party

When there is a _______ production externality, the free market _________ resources to the production of the good and too ______ of it is produced relative to the social optimum. This is shown by _______and _______ at the point of production, Qm, *

• negative; misallocate; little; Qm > Qopt; MSC < MSB

• positive; underallocate; much; Qm > Qopt; MSB > MSC

• negative; overallocate; much; Qm > Qopt; MSC > MSB

• positive; misallocate; much; Qm > Qopt; MSC > MSB

Which of the following is a characteristic of a merit good?

• It could be provided by the free market, but not in sufficient quantities

• It is always provided free to consumers

• It tends to generate negative externalities, so governments restrict its consumption

• Once the good has been supplied to one consumer, there is no additional cost in supplying it to others

Which of the following diagrams best represents the market for vaccines?

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Which of the following diagrams best represents the market for sugary drinks?

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Negative externality of production happens when

• Marginal social cost is to the left of marginal private cost

• Marginal social cost is to the right of marginal private cost

• Marginal social benefit is to the left of marginal private benefit

• Marginal social benefit is to the right of marginal private benefit

The use of advertisement to decrease negative externality of consumption affects

• Marginal social cost

• Marginal private cost

• Marginal social benefit

• Marginal private benefit

Complete market failure always exists when

• there are negative externalities in production

• the free market underprices demerit goods

• the free market fails to provide sufficient merit goods

• the market does not provide any public goods

Merit goods are likely to be underprovided in a free market economy because their

• social benefits exceed their social costs

• social benefits exceed their private benefits

• private benefits exceed their social benefits

• private costs exceed their private benefits

Where there is partial market failure

• the product is both non-excludable and non-rival in consumption

• the market can only be competitive with government support

• a market exists but there is a misallocation of resources

• there is excess demand in the market at the current market price