A government is reviewing its microeconomic policy options to correct various market failures. The table below outlines four market failures, their associated economic consequences, and a proposed government policy intervention.
| Scenario | Market Failure Type | Economic Consequence | Proposed Government Intervention |
|---|---|---|---|
| A | Negative production externalities | Marginal Social Cost exceeds Marginal Private Cost (MSC>MPCMSC > MPCMSC>MPC) | Provision of a per-unit subsidy to producers |
| B | Public goods | Non-excludability leading to the free-rider problem | Direct state provision financed via progressive taxation |
| C | Positive consumption externalities | Under-consumption as Marginal Social Benefit exceeds Marginal Private Benefit (MSB>MPBMSB > MPBMSB>MPB) | State-funded subsidies to lower the consumer price |
| D | Geographical labour immobility | Regional structural unemployment and productive inefficiency | Relocation grants and subsidised housing for workers moving to high-employment areas |
In which of the scenarios, A, B, C, or D, is the proposed government intervention not appropriate to resolve the market failure?
Scenario A
Scenario B
Scenario C
Scenario D
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.