10 questions🇬🇧English
🏭 Market Failure & Externalities – A-level
Economics · A-level — externalities, merit and public goods, information gaps and government intervention
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Questions
Which statement best defines market failure?
Firms make losses and are forced to leave
The free market allocates resources inefficiently
The general price level rises over time
The government sets a maximum legal price
20s
Which of these is an example of a negative production externality?
A neighbour's tidy garden pleasing passers-by
A smoker harming the health of bystanders
A beekeeper's bees pollinating a farmer's orchard
A factory's smoke harming nearby residents' health
20s
Which two characteristics define a pure public good?
Rival but non-excludable
Rival and excludable
Non-rival and non-excludable
Non-rival but excludable
20s
What is the likely result of the free-rider problem for a public good?
Firms charge a monopoly price for it
Consumers buy too much of it
The market over-provides it at a low price
The market under-provides it or fails to provide it
20s
In a market with a negative production externality, how does free market output compare with the social optimum?
It is lower than the social optimum
It is equal to the social optimum
It falls to zero
It is higher than the social optimum
30s
According to the information-failure view, why are merit goods under-consumed in a free market?
Consumers underestimate their private benefits
Their demand is perfectly price inelastic
They create large negative externalities
Firms cannot exclude non-paying consumers
30s
Sellers of second-hand cars know more about a car's quality than buyers do. What type of market failure is this?
Positive externality
Asymmetric information
Free-rider problem
Monopoly power
30s
At the socially optimal output, MPC is £20 and MSC is £26 per unit. What per-unit Pigouvian tax would internalise the externality?
£46
£26
£6
£20
30s
Free market output is 100; the social optimum is 80. At 100 units, MSC exceeds MSB by £10. With linear curves, what is the welfare loss?
£200
£50
£100
£1,000
60s
What is the main efficiency advantage of tradable pollution permits over uniform regulation?
Every firm must cut emissions by the same amount
Emissions are cut where it is cheapest to do so
Firms no longer need to measure their emissions
The government fixes the price of each permit
30s