Allocation of resources

What is the function of the price mechanism in a market economy?

• allocating resources and guiding choices

• allowing governments to provide price stability

• enabling markets to operate fairly

• preventing competitors from entering a market

What suggests that there is market failure?

• high producer profits

• high retail prices

• lack of competition

• low levels of investment

In a private market system certain goods and services would not be available unless the government intervened. What does this identify in a private market?

• market distribution

• market equilibrium

• market failure

• market structure

What causes market failure?

• government provision of services

• social costs equal private costs

• the existence of external benefits

• the existence of perfect competition

A private sector firm is given a contract by the government to supply a country’s water. Which government directive will minimise the risk of market failure?

• allow the firm to ration water rather than meet demand

• ensure the firm’s supply includes all areas which are expensive to service

• insist that the firm aims to maximise profits

• instruct the firm to provide water only to those who can pay for it

What is an example of market failure?

• city centre congestion

• low economic growth

• rising prices

• trade deficits