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Summary Economics Edexcel A Theme 1.3
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Theme 1.3 full depth summarised notes. Alevel - year 1 content.
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, 1.3.1 Types of market failureMarket failure is when the free-market mechanism does not lead to an optimal
allocation of resources. (The point at equilibrium).
Allocative efficiency happens when there is an optimal distribution of goods and
services, considering consumers’ preferences.
Types of market failure:
1) Externalities:
Refers to the cost or benefit received from an economic transaction
2) Under-provision of public goods:
Public goods are non-rivalry and non-excludable, meaning they are under provided by
the private sector.
3) Information gaps:
We don’t all have the information in order to make rational decisions which leads to a
misallocation of resources. All economic agents should have good information about
current market conditions.
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