What is asymmetric information as a source of market failure?
When one party in a transaction knows more than the other — leading to problems like adverse selection (used-car market) or moral hazard (insurance). Markets can fail or unravel when information is unequal. Learn it step by step →
Market Failure & Government is a core part of A-Level Economics. Revise the key concepts and common mistakes below, then lock them in with the free games.
Questions where students often pick the tempting wrong answer — make sure you know the right one:
What is asymmetric information as a source of market failure?✗ Asymmetric information means a buyer and seller disagree about a price.✓ When one party in a transaction knows more than the other — leading to problems like adverse selection (used-car market) or moral hazard (insurance). Markets can fail or unravel when information is unequal.
What defines a pure public good?✗ A public good is anything provided by the government.✓ Non-rivalry (one person's use doesn't reduce others') and non-excludability (you can't stop people benefiting) — e.g. national defence, street lighting.
What is the difference between a shift in demand and a movement along the demand curve?✗ A change in price shifts the demand curve.✓ A movement along the curve is caused by a change in price; a shift of the whole curve is caused by changes in other factors (income, tastes, substitute prices).
What is the predicted effect of a binding price ceiling like rent control?✗ Price ceilings make goods cheaper for everyone with no downsides.✓ Shortage in the market — quantity demanded exceeds quantity supplied at the controlled price, leading to queues, black markets and reduced quality.
What is a Pigouvian tax?✗ A Pigouvian tax is a tax that funds government spending.✓ A tax set equal to the external cost of an activity — designed to internalise the externality so the private cost reflects the social cost. Used for pollution, congestion, sugary drinks.
Practise Market Failure & Government — free games
Test yourself with these quick revision games for this topic:
