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, resulting in overproduction or underproduction of goods.
Key Concepts
- 1Definition of market failure
- 2Types of market failure: public goods, externalities, information asymmetry, and market power
- 3Consequences of market failure on economic welfare
- 4Government intervention as a solution to market failure
- 5Evaluation of the effectiveness of government interventions
Simple Explanation
Market failure happens when the market doesn't distribute resources efficiently, leading to problems like too much or too little of a product being made. This can occur for various reasons, such as public goods being underprovided or negative effects on third parties (externalities). When the market fails, it can hurt overall economic welfare, prompting the government to step in to correct these issues.
Memory Trick
“Remember 'PEE-G' for Market Failure: Public goods, Externalities, Information Asymmetry, and Government intervention.”
Flashcards
What is market failure?
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Exam Questions
Describe and explain the concept of market failure and its implications for economic welfare. [6 marks]
6 marksView mark scheme hint▾
Define market failure, identify types, explain consequences, and mention government intervention.
Explain how externalities can lead to market failure. [4 marks]
4 marksView mark scheme hint▾
Define externalities, provide examples, and explain their impact on third parties.
What is meant by public goods? [2 marks]
2 marksView mark scheme hint▾
Define public goods and explain their characteristics.
Practice Quiz
What is a key characteristic of public goods?
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