In January and February 2014, there were demands for the UK Government to construct more flood defences. Floods damaged homes, factories and other resources, and some were destroyed. It was said that government intervention was necessary in this situation because there was evidence of market failure.
(a)[2]
Define the term ‘market failure’.
(b)[4]
Explain how government regulation can help to reduce market failure.
(c)[6]
Analyse the effect that a fall in resources has on government economic aims.
(d)[8]
Discuss whether the social benefits from building flood defences will be greater than the social costs involved.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Market forces do not achieve efficiency” …