CAIE IGCSE Economics 2.9.4 Consequences of market failure
Practise analysing how market failure affects consumption, production, public goods and stakeholder welfare in real-world contexts.
- Syllabus
- 2027–2029
- Course
- Economics 0455
Exam points
- interpret a petrol supply diagram to show output based on private versus social cost
- explain why demerit goods are over-consumed and merit goods are under-supplied
2.9.4—Consequences of market failure question 1
[Maximum number: 6]
Digital money, such as cryptocurrencies, is increasingly being used. Digital money transactions take place on electronic devices such as computers and smartphones. However, there can be market failure due to external costs arising from high energy usage of non-renewable sources. One way of reducing external costs is to tax the product.
Analyse the consequences of market failure.
Analyse the consequences of market failure.
Coherent analysis which might include:
- market failure exists when the production or consumption of goods and services in a market is not efficient (1)
- overconsumption of demerit goods (1) and goods with external costs (1) leading to an overall misallocation of resources (1) e.g. overconsumption of cigarettes, fossil fuels (1)
- underconsumption of merit goods (1) and goods with external benefits (1) e.g. education, healthcare (1)
- non-supply (1) of public goods (1) e.g. defence (1)
- abuse of monopoly power (1) resulting in higher prices (1) reducing affordability / choice (1)
- factor immobility (1) resulting in shortages and surpluses (1) causing unemployment (1) resulting in lower income / poverty (1).
6
i.e. labour market failure.
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