The production of a certain industrial chemical results in significant air pollution, representing a negative externality of production. If this market is left entirely to the forces of a free market, how will the market price and output compare to the socially optimum levels?
The price would be higher and the output would be lower
The price would be lower and the output would be higher
Both the price and the output would be higher
Both the price and the output would be lower
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.