GCSE Economics Revision: Correcting market failure (With Mock Questions!)
Get Exam-Ready with These Key Tips and Mock Questions!
Hey there, amazing students! 👋
Are you feeling a little stressed about your GCSE Economics exam? Don't worry, I’ve got you covered! Today, we're going to focus on one of the most important topics you’ll need to know: Correcting Market Failure. This is a key area that could very well appear in your exams, and it's crucial to be confident about it.
Let’s break this down so you can understand it easily and be ready for anything the exam throws your way!
What is Market Failure?
Market failure occurs when the allocation of goods and services by a free market is not efficient. This can lead to overproduction or underproduction of goods that can harm society, like pollution or lack of public goods. Correcting market failure involves government intervention to ensure that resources are used in the best way possible for the benefit of all.
Some common forms of market failure include externalities, public goods, merit goods, and monopolies. Each of these areas shows where the market fails to allocate resources properly, and the government often steps in to help fix these issues.
What Are the Key Learning Items?
🎯 Externalities: These are costs or benefits of a market activity that affect third parties. For example, pollution is a negative externality.
🎯 Public Goods: These are goods that are non-excludable and non-rivalrous, meaning everyone can use them, and one person’s use doesn’t reduce availability for others. Examples include street lighting and national defense.
🎯 Merit Goods: These are goods the government feels people will under-consume, like healthcare or education.
🎯 Government Intervention: How the government intervenes using taxes, subsidies, regulations, and provision of public goods to correct market failure.
What You Need to Show in Your Exam
To do well in the exam, you need to be able to explain:
✨ What market failure is, including examples of externalities, public goods, and merit goods.
✨ How government intervention can correct market failure.
✨ The advantages and disadvantages of government intervention in markets.
Make sure you are confident using economic terms like subsidies, taxes, regulation, and externalities in your explanations!
Key Things to Remember Before the Exam
📝 Understand the key terms. Don’t just memorize definitions—make sure you understand them with real-world examples.
📝 Practice explaining government interventions. Why are they needed, and how do they work?
📝 Think critically! Be ready to evaluate the pros and cons of different types of government intervention.
📝 Get plenty of rest. No cramming the night before! A well-rested brain works best.
Mock Multiple Choice Questions to Test Yourself!
Q1 - Which of the following is an example of a public good?
a) A car
b) A streetlight
c) Private healthcare
d) Fast food
Q2 - What is a negative externality?
a) A benefit to third parties from a market transaction
b) A cost to third parties from a market transaction
c) The price of a good in a free market
d) The profit made by a company
Q3 - Which government policy is most likely to reduce pollution?
a) Increasing the interest rate
b) Providing a subsidy for electric vehicles
c) Reducing income taxes
d) Raising the minimum wage
Q4 - Merit goods are under-consumed because:
a) They are too expensive
b) People don’t fully understand their benefits
c) They are non-rivalrous
d) The government restricts their availability
Q5 - What is one disadvantage of using taxes to correct market failure?
a) They always cause unemployment
b) They can make products too expensive for lower-income households
c) They are never effective in reducing negative externalities
d) They eliminate the demand for the product
To check your answers and see more questions check out our GCSE Economics Multiple-Choice booklet, with 250 sample questions and answers for you to revise
You’ve got this! Keep practicing, keep revising, and remember that you’re fully capable of smashing this topic. I’m cheering for you all the way! 🌟
Good luck, and stay confident!