Examine the effects of market failure, particularly how it results in the overconsumption of demerit goods and goods with external costs, as well as the underconsumption of merit goods and goods with external benefits.

Quick explanation

Examine the effects of market failure, particularly how it results in the overconsumption of demerit goods and goods with external costs, as well as the underconsumption of merit goods and goods with external benefits

• This point belongs to Market failure, especially Market failure outcomes.
• You need to be able to examine the effects of market failure, particularly how it results in the overconsumption of demerit goods and goods with external costs, as well as the underconsumption of merit goods and goods with external benefits.
• The key ideas to know are Analyse, Discuss, and Explain.
• Use the linked flashcards and practice questions to check recall, then practise applying the idea in an exam-style answer.