Edexcel Economics Market Failure Revision Notes
Master Edexcel Economics Market Failure using simple revision notes, key facts and practice questions — all generated by AI for your exam.
Market failure occurs when the allocation of goods and services by a free market is not efficient. This leads to a net loss of economic welfare, meaning that resources are not being used in the best way possible.
Key Concepts
- 1Externalities
- 2Public Goods
- 3Information Asymmetry
- 4Market Power
- 5Inequality
Simple Explanation
Market failure happens when the market doesn't work properly, leading to wasted resources or unfair outcomes. For example, pollution is a negative externality that affects people who aren't part of the transaction. Public goods, like street lighting, are not provided efficiently by the market because they are non-excludable and non-rivalrous.
Memory Trick
“Remember 'EPI-MI' for Market Failure: Externalities, Public Goods, Information Asymmetry, Market Power, Inequality.”
Flashcards
What is market failure?
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Exam Questions
Describe and explain the concept of externalities. [6 marks]
6 marksView mark scheme hint▾
Define externalities, provide examples, explain positive and negative externalities, and their impact on market failure.
Explain how public goods can lead to market failure. [4 marks]
4 marksView mark scheme hint▾
Define public goods, explain non-excludability and non-rivalry, and discuss the free-rider problem.
What is meant by information asymmetry? [2 marks]
2 marksView mark scheme hint▾
Define information asymmetry and provide an example of its impact on market transactions.
Practice Quiz
What is a key cause of market failure?
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