CAIE IGCSE Economics 2.9.4 Consequences of Market Failure Questions
Practise Cambridge IGCSE Economics by analysing welfare losses from market failure and why governments intervene to correct them.
- Syllabus
- 2027–2029
- Course
- Economics 0455
Exam points
- Explain consequences of market failure for consumers, producers and society.
- Analyse external costs, merit goods and other welfare losses from market failure.
- Explain why governments may discourage harmful consumption and correct market failure.
CAIE IGCSE Economics 2.9.4 Consequences of Market Failure Questions question 1
[Maximum number: 4]
New Zealand is a high-income country with a low unemployment rate and a surplus of imports over exports. Recently, its government has made some important economic decisions. In 2022, it banned everyone born after 2008 from buying cigarettes. A year before, it gave permission for firms to explore for oil in the country.
Explain two reasons why a government may discourage cigarette smoking.
Explain two reasons why a government may discourage smoking.
Logical explanation which might include:
Improve health of those who give up smoking / smoking harms the health of smokers (1) reduce consumption of a demerit good / cigarettes are a demerit good (1) cigarettes are overconsumed / overproduced (1).
Increase health of the population / reduce the health damage caused to non-smokers (1) reduce passive smoking / reduce air pollution (1).
Reduce market failure (1) reduce external cost / reduce the gap between social costs and social benefits (1). Reduce health care costs (1) more could be spent on e.g. education (1).
Increase productivity / stop fall in productivity (1) raise income/GDP / stop fall in income / GDP (1).
4
There is a degree of mix and match on this question. Most of the points may be interpreted as either identification or explanation. Essentially a question on why a government
may discourage smoking.
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