A government is considering policies to address various microeconomic market failures. The table below outlines four different market failure situations, their social consequences, and a proposed policy response.
| Situation | Type of market failure | Consequences of failure | Proposed Government Intervention |
|---|---|---|---|
| A | Factor immobility | Structural unemployment | Subsidies for vocational retraining |
| B | Public goods | Complete market failure (free-rider problem) | Direct state provision funded by taxation |
| C | Merit goods | Under-consumption and welfare loss | Imposition of an indirect tax |
| D | Negative production externalities | Over-production and external costs | Tradable pollution permits |
In which one of the situations, A, B, C or D, is the proposed government intervention not appropriate?
Situation A
Situation B
Situation C
Situation D
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.