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1 markMarket Failure

CAPE Economics Unit 1 · 2014 · Paper 2 · Question 4(c)(i)

Consider the market for used cars where high-quality and poor-quality cars are traded, and sellers know car quality while buyers do not.

Identify the issue being described.

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Other parts of this question

  1. 4(a)(i)Define the term 'public good'.[2 marks]
  2. 4(a)(ii)Explain why public goods are usually provided by the government.[3 marks]
  3. 4(b)(i)Define the term 'externality'.[2 marks]
  4. 4(b)(ii) a)Copy the diagram provided into your answer booklet and label it to illustrate a negative production externality.[4 marks]
  5. 4(b)(ii) b)Use the completed diagram to explain how negative externalities lead to market failure.[4 marks]
  6. 4(b)(iii)Outline THREE policies that the private sector can adopt to correct market failures.[6 marks]
  7. 4(c)(ii)Explain how the issue identified in (c)(i) leads to market failure.[3 marks]

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