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1.6 Market failure

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Question 33

A marina provides motorboat trips. A landowner carries out riverbank restoration.

ActivityQuantityPrivate cost or benefitSocial cost or benefit
Motorboat trips180 tripsPrivate cost: £70 per tripSocial cost: £88 per trip
Riverbank restoration120 metresPrivate benefit: £34 per metreSocial benefit: £55 per metre

Which statement correctly compares the total external effects and predicts the likely allocation of resources?

[1]
A

Motorboat trips create the larger total external effect; motorboat trips are likely to be over-provided and riverbank restoration is likely to be under-provided

B

Riverbank restoration creates the larger total external effect; motorboat trips are likely to be over-provided and riverbank restoration is likely to be under-provided

C

Motorboat trips create the larger total external effect; motorboat trips are likely to be under-provided and riverbank restoration is likely to be over-provided

D

Riverbank restoration creates the larger total external effect; motorboat trips are likely to be under-provided and riverbank restoration is likely to be over-provided

Markscheme

1.6 Market failure Questions

  1. GCSE
  2. /Economics
  3. /1.6 Market failure

83 exam-style questions on AQA GCSE Economics 1.6 Market failure, covering 1.6.1a Market failure as misallocation of resources, 1.6.1b Government intervention, 1.6.2a Defining externalities, and 1.6.2b Positive and negative externalities. Each one has a worked solution and a mark scheme showing where the marks go.

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