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3 marksMarket Failure

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

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

Explain how the issue identified in (c)(i) leads to market failure.

The mark scheme is shown once you've answered.

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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)(i)Identify the issue being described.[1 mark]

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