In economic theory, a fundamental distinction is made between complete and partial market failure. Which of the following scenarios describes a complete market failure?
The under-provision of primary healthcare services in a rural area because low-income consumers cannot afford to pay the market-clearing price.
A private firm refuses to build a coastal flood defence barrier because it is impossible to exclude non-paying residents from benefiting from it.
A monopoly supplier of domestic water charging prices where price (PPP) exceeds marginal cost (MCMCMC), resulting in allocative inefficiency.
A state-funded regulatory agency setting a maximum price for rental housing below the market equilibrium, causing a chronic shortage of properties.
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.