Firms in the automotive manufacturing sector in a developed economy relocate their production facilities to countries with lower labor costs. The newly redundant assembly plant workers possess highly specific skills and are occupationally immobile. This situation represents a market failure because
domestic vehicle production is replaced by imported cars.
some factors of production will not be fully employed.
the government fails to subsidize training programs for these workers.
passenger vehicles are classified as a demerit good.
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.