RESIDENTIAL SCHOOL IN FERGANA

0455 Cambridge IGCSE Economics

Grade 9-Green Students full name Abdusalom Muhammadjonov

Type of assessment: ___________________Term : _2_ Date: _19.02.2024_

Case Study Questions on Market Failure:

1. The government has recently implemented a policy to address air pollution caused by vehicle emissions.
Analyze the market failure associated with this issue and suggest possible interventions to correct the
externality.
Market failure: Negative externalities from vehicle emissions (air pollution);
incomplete property rights over clean air;
decreasing price of transportation doesn't reflect true social costs.

Possible interventions:

Taxes (carbon tax, vehicle using charge).

Subsidies for clean technology.

Standards checking for vehicle emissions.

Investment in public transportation.

Public awareness campaigns on air pollution.

2. A company has been dumping industrial waste into a nearby river, causing significant harm to the local
ecosystem. Examine the market failure involved in this situation and propose measures to internalize the
external costs.

Market failure: Increased external cost causing to increased social costs as the company is not paying the
cost
Measures: fines or punishments to internalize external costs;
encouraging investment in cleaner production technologies.

3. The consumption of sugary beverages has been linked to various health problems. Discuss the market
failure associated with the consumption of such beverages and explore potential strategies to address
this issue.

Market failure: Consumers may not consider long-term health costs.

Strategies: taxes on sugary beverages to pay attention to health costs;

increase public awareness.

4. The production of genetically modified crops has raised concerns about potential environmental risks.
Assess the market failure related to this situation and suggest ways to mitigate the external costs.

Market failure: Environmental risks are not included in production costs.

Mitigation: telling people about health risks through advertisements;
make rules about usage of chemicals used in genetically modifying.

5. The fishing industry is experiencing declining fish stocks due to overfishing. Analyze the market failure
involved in this case and propose measures to achieve a sustainable level of fishing.

Market failure: increased demand due to lack of property rights.

Measures: make rules about rights for fishing;
Protect fishing areas and put limit on use.

6. The construction of a new factory in a residential area has led to increased noise pollution and reduced
property values. Examine the market failure associated with this situation and recommend actions to
internalize the external costs.

Market failure: the factory does not take into account the social and external costs.

Actions: make taxes on noise pollution;

relocating the factory;

pay the fine for noise pollution to near area’s population.

7. The use of fossil fuels for energy production contributes to climate change and environmental
degradation. Discuss the market failure involved and propose policies to address this issue.

Market failure: External costs of climate change and pollution are not included in prices.
Policies: subsidize renewable energy sources, not this kinds;
Investing in clean technologies;
Increasing price of resources that are produced by degrading environment.

8. A pharmaceutical company is engaging in price gouging, making life-saving medications unaffordable for
many people. Analyze the market failure associated with this situation and suggest interventions to
protect consumers.

Market failure: lack of competition, causing monopoly.

Interventions: providing competition;
Setting a maximum price for controlling price;
Giving subsidy to firms to lower price by government.

9. The lack of public transportation options in a city has resulted in increased traffic congestion and air
pollution. Discuss the market failure involved in this case and propose measures to improve
transportation efficiency.

Market failure: pollution and traffic congestion will have negative effect on economy because of external
costs
Measures: Investment in public transportation;
Increase the awareness of population about bad results of pollution and traffic congestions.
 10. The production and consumption of plastic products have led to significant pollution of oceans and
landfills. Analyze the market failure related to this issue and recommend policies to reduce plastic waste.

Market failure: External costs are not paid by producers.

Policies: making rules to use plastic for production;

Subsidizing other types of production, so producers change the use of materials;

Recycling plastics.

QMultiple Choice Questions:

1. Which of the following represents a social cost? d) Public transportation

a) Costs incurred by a private firm

b) Costs borne by society as a whole 5. A socially optimum output occurs when:

c) Costs paid by individual consumers a) Marginal social benefit equals marginal social cost

d) Costs associated with government expenditure b) Marginal private benefit equals marginal private
cost

c) Marginal external benefit equals marginal external

2. External costs are:
cost
a) Costs borne by producers or consumers within a
d) Marginal private benefit exceeds marginal social
market transaction
cost
b) Costs that affect third parties who are not
involved in a market transaction
6. Information failure occurs when:
c) Costs incurred by the government to provide
public goods a) Consumers have perfect knowledge about a
product's characteristics
d) Costs associated with pollution and
environmental degradation b) Producers have complete information about costs
and benefits

c) Market participants lack access to relevant

3. Private benefits refer to:
information
a) Benefits enjoyed by individual consumers
d) Prices accurately reflect the social costs and
b) Benefits that accrue to society as a whole benefits

c) Benefits received by the government from

taxation
7. Which of the following is an example of a public
d) Benefits associated with the provision of public good?
goods
a) Food

b) Clothing
4. Which of the following is an example of a demerit
c) Street lighting
good?
d) Private healthcare
a) Education

b) Healthcare
8. Monopoly refers to a market structure where:
c) Alcohol
a) There are many buyers and sellers
b) There is only one buyer and many sellers
c) There is only one seller and many buyers
d) Buyers and sellers have equal market power
9. Price fixing occurs when:
a) Firms collude to set prices at a level lower than
the equilibrium price
b) The government sets price controls to regulate
market prices
c) Producers compete to offer the lowest prices to
consumers
d) Consumers collectively bargain for lower prices
10. Immobility of resources refers to a situation
where:
a) Labor and capital can easily move between
different industries
b) Factors of production cannot be easily reallocated
between uses
c) There is a lack of competition in a particular
market
d) Consumers have limited mobility to access goods
and services
11. Short-termism refers to a tendency to:
a) Focus on long-term planning and investment
b) Prioritize immediate gains over long-term
sustainability
c) Consider the social costs and benefits of economic
decisions
d) Promote intergenerational equity in resource
allocation
12. A merit good is:
a) Any good or service that is provided by a
government agency
b) A good or service that is consumed only by the
wealthy
c) A good or service that has positive externalitiesd)
A good or service that is deemed to be socially
beneficial and underprovided by the market
13. A demerit good is:
a) A good or service that is provided for free by the
government
b) A good or service that is consumed only by a
specific group of people
c) A good or service that has negative externalities
d) A good or service that is considered to be of low
quality
14. Public goods are characterized by:
a) Rivalry in consumption and exclusion of non-
payers
b) Non-rivalry in consumption and exclusion of non-
payers
c) Rivalry in consumption and non-exclusion of non-
payers
d) Non-rivalry in consumption and non-exclusion of
non-payers
15. Which of the following is a characteristic of a
monopoly market?
a) Many firms competing to sell similar products
b) A single firm selling a unique product with no
close substitutes
c) Few firms selling differentiated products
d) A perfectly competitive market with free entry
and exit
16. Price fixing is an example of:
a) Perfect competition
b) Monopolistic competition
c) Collusion
d) Market failure
17. Which of the following is a consequence of 4 C 14 D
resource immobility? 5 A 15 B
6 C 16 C
a) Efficient allocation of resources in the economy 7 C 17 C
b) Increased competition among firms 8 C 18 C
9 B 19 D
c) Unemployment and underutilization of resources 10 B 20 A
d) Lower prices for goods and services

18. Short-termism in economic decision-making can

lead to:

a) Long-term sustainability and economic growth

b) Efficient allocation of resources in the economy

c) Neglect of environmental concerns and future

consequences

d) Equitable distribution of income and wealth

19. Which of the following is an example of

information failure?

a) Consumers having access to accurate product

information

b) Producers accurately estimating their production

costs

c) Market prices reflecting the true social costs and

benefits

d) Advertising campaigns misleading consumers

about product qualities

20. The government intervenes in the market to

provide public goods because:

a) Private firms are unable to produce public goods

efficiently

b) Private firms can charge high prices for public

goods

c) Private firms are motivated by profit and ignore

social benefits

d) Public goods have no social value and need to be

provided for free

Q# Answer Q# Answer
1 B 11 B
2 B 12 D
3 A 13 C