Which of the following situations represents an example of market failure rather than the normal operation of the market mechanism?
the price of global crude oil rises rapidly in response to a sudden restriction in supply by major producing nations
a decline in the demand for skilled labor in manufacturing leads to falling real wages and workers retraining for service sector jobs
a firm with monopoly power restricts output to maximize profits, causing the market price to exceed the marginal cost of production
a supermarket chain lowers the price of milk during a price war, resulting in lower profits for dairy farmers
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.