ContextNearly 750 000 consumers in Britain face unresolved problems with used car purchases every year. Older vehicles tend to have more faults and increase the risks facing a potential buyer.

With reference to the data above, explain how imperfect market information may lead to a misallocation of resources in the used-car market.

1.3.4 · Information gaps 1.3.1 · Types of market failure

Information gaps revision notes Types of market failure revision notes

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Multiple-choice questions

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AS Paper 1, June 2025, Q3(b)Multiple choice

1 mark

Which one of the following is the most likely reason why a free market fails to achieve the social optimum position?

APublic goods are provided free of charge to users

BThere is overproduction of goods with external benefits

CThere is underconsumption of goods with external benefits

DThere is underproduction of goods with external costs

1.3.2 · Externalities 1.3.1 · Types of market failure

Externalities revision notes Types of market failure revision notes

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AS Paper 1, June 2022, Q4(b)Multiple choice

1 mark

ContextA large number of people should be vaccinated against a new virus, so that even those who are not vaccinated will benefit.

Which one of the following explains how market failure might occur in a free market economy?

AA net welfare loss results from intervention by the government

BFirms enter the market in response to higher prices

CGoods with positive externalities are underprovided

DPrices rise when there is excess demand

1.3.1 · Types of market failure 1.3.2 · Externalities

Types of market failure revision notes Externalities revision notes

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