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SingaporeEconomics

Market Failure and Intervention

6 dot points across 6 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

When does government intervention make resource allocation worse rather than better?

Explain government failure and its main causes, and use it to evaluate whether intervention improves on the market
A focused answer to the H2 Economics learning outcome on government failure. What it means, its main causes such as information gaps, unintended consequences and political pressures, and how to weigh it against market failure.
8 min answer →

What tools can a government use to correct market failure, and how does each work?

Evaluate the tools governments use to correct market failure, including taxes, subsidies, regulation, tradable permits and direct provision
A focused answer to the H2 Economics learning outcome on intervention. How taxes, subsidies, regulation, tradable permits and direct provision correct market failure, and the strengths and weaknesses of each.
10 min answer →

How does a lack of, or unequal, information lead a market to allocate resources badly?

Explain how imperfect and asymmetric information cause market failure, including adverse selection and moral hazard
A focused answer to the H2 Economics learning outcome on information failure. How imperfect and asymmetric information distort decisions, the problems of adverse selection and moral hazard, and why this misallocates resources.
8 min answer →

How do costs and benefits that fall on third parties distort the market outcome?

Analyse negative and positive externalities using marginal social and private cost and benefit curves and identify the welfare loss
A focused answer to the H2 Economics learning outcome on externalities. How external costs and benefits drive a wedge between private and social value, the over- and under-production results, and the deadweight welfare loss.
10 min answer →

Why will a market never supply street lighting, and why does it under-supply healthcare?

Distinguish public goods from merit and demerit goods and explain why each is mis-provided by the market
A focused answer to the H2 Economics learning outcome on public and merit goods. The non-rival and non-excludable properties of public goods and the free-rider problem, and why merit goods are under-consumed and demerit goods over-consumed.
9 min answer →

When and why does a free market fail to allocate resources efficiently?

Define market failure as allocative inefficiency and identify its main sources
A focused answer to the H2 Economics learning outcome on market failure. What allocative efficiency means, why a free market can fail to achieve it, and the main sources of market failure.
8 min answer →