Installing green roofs (roofs covered with vegetation) on urban buildings improves local air quality, reduces stormwater runoff, and lowers urban temperatures, bringing widespread benefits to the city. However, most property owners choose to install standard asphalt shingle roofs instead.
Which one of the following best describes the resulting failure in the market for green roofs?
The social optimum output is greater than the free market output because the private benefit is greater than the social benefit.
The social optimum output is greater than the free market output because the private benefit is less than the social benefit.
The social optimum output is less than the free market output because the private benefit is greater than the social benefit.
The social optimum output is less than the free market output because the private benefit is less than the social benefit.
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.