The free market mechanism often fails to achieve an allocatively efficient allocation of scarce resources. One reason for this market failure is because
positive externalities result in an overprovision of merit goods by private firms.
the price mechanism fails to reflect the full social costs of goods that generate negative externalities.
public goods are overproduced by private firms seeking to maximise abnormal profits.
asymmetric information causes consumers to underconsume demerit goods.
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.