Which one of the following describes a situation that provides an economic justification for government intervention in a market?
Consumers may undervalue the private benefits of merit goods due to information failure.
State regulation is the only effective policy instrument to eliminate the welfare loss from negative externalities.
Perfectly competitive firms consistently underallocate resources when producing goods with no externalities.
Common pool resources are characterized by being both non-excludable and non-rivalrous in consumption.
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.