OCR Economics Market Failure Revision Notes
Master OCR 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 can lead to a net loss of economic welfare, where resources are not used optimally.
Key Concepts
- 1Externalities: Costs or benefits not reflected in market prices.
- 2Public Goods: Goods that are non-excludable and non-rivalrous, leading to underproduction.
- 3Information Asymmetry: Situations where one party has more or better information than the other.
- 4Market Power: When a firm or group can influence prices and output, leading to inefficiency.
- 5Inequality: Distribution of resources that leads to unequal access to goods and services.
Simple Explanation
Market failure happens when the market doesn't work perfectly, meaning that not all costs and benefits are taken into account. This can result in problems like pollution, under-provision of essential services, or unfair pricing. When these issues occur, the economy doesn't work as well as it could, leading to wasted resources and unhappy consumers.
Memory Trick
“Remember 'EPIMI' for Market Failure: Externalities, Public Goods, Information Asymmetry, Market Power, Inequality.”
Flashcards
What are externalities?
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Exam Questions
Describe and explain the concept of externalities in the context of market failure. [6 marks]
6 marksView mark scheme hint▾
Define externalities, provide examples, and explain their impact on market efficiency.
Explain how public goods can lead to market failure. [4 marks]
4 marksView mark scheme hint▾
Define public goods and discuss the implications of their characteristics.
What is meant by market power? [2 marks]
2 marksView mark scheme hint▾
Define market power and give a brief example.
Practice Quiz
What is a common cause of market failure?
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