A commercial aquaculture farm near an estuary uses open-net pens to raise salmon, releasing large quantities of organic waste and chemical treatments into the surrounding marine ecosystem. This damages the local wild fish populations and disrupts artisanal fisheries nearby.
Which one of the following best describes the resulting market failure in the aquaculture market?
The social optimum output is greater than the free market output because the private cost is greater than the social cost.
The social optimum output is greater than the free market output because the private cost is less than the social cost.
The social optimum output is less than the free market output because the private cost is less than the social cost.
The social optimum output is less than the free market output because the private cost is greater than the social cost.
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.