This question appeared in Unit 3 — Business economics and the distribution of income — within the AQA specification. The question focuses on the fact that ‘imperfect information may lead to market failure’, with a particular application to merit and demerit goods. Environmental pollution provides the topic for the second part of the question.
The economist George A. Akerlof was influential in highlighting the importance of asymmetric information in causing markets to fail, for which he was awarded the Nobel Prize for economic sciences. You can find out more about his contribution to economics on pp. 10–11 of this issue of ECONOMIC REVIEW, and there is also an article explaining his famous discussion of the market for ‘lemons’ on pp. 19–21.
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