Which one of the following statements about market failure and externalities is correct?
Negative externalities in production cause marginal private costs to exceed marginal social costs.
A positive externality in consumption means that the marginal social benefit of a transaction is greater than the marginal private benefit.
The free-rider problem means that private firms can easily charge consumer prices for pure public goods.
Demerit goods are only ever supplied by the public sector due to complete market failure.
378 exam-style questions on AQA A Level Economics 1.8 The market mechanism, market failure and government intervention in markets, covering 1.8.1 How markets and prices allocate resources, 1.8.2 The meaning of market failure, 1.8.3 Public goods, private goods and quasi-public goods, 1.8.4 Positive and negative externalities in consumption and production, 1.8.5 Merit and demerit goods, 1.8.6 Market imperfections, 1.8.7 Competition policy (A-level only), 1.8.8 Public ownership, privatisation, regulation and deregulation of markets (A-level only), 1.8.9 Government intervention in markets, and 1.8.10 Government failure. Each one has a worked solution and a mark scheme showing where the marks go.