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ExamPass · IGCSE worksheet

Market failure and externalities

NameClassDate

Key terms

Define each term.

1
Market failure

Multiple choice

Circle the correct answer.

2

Why does a free market under-provide public goods?

  1. They are too expensive to produce
  2. Non-excludability means consumers can free-ride, so firms cannot charge
  3. Demand for them is inelastic
  4. Governments prohibit private firms from supplying them

Answers

1

Market failure: A situation where the market mechanism allocates resources inefficiently, producing too much or too little of a good.

2

B. If people cannot be excluded from a good once it exists, they have no reason to pay for it. No firm can profitably supply it, so provision falls to the government.