IB Economics: Market Failure - Key Concepts, Examples, and Essay Help

Understand market failure in IB Economics. Causes, case studies, and policy responses - real examples and exam-focused support.

Market failure is one of the most commonly examined topics in IB Economics. From externalities to merit goods and public goods, understanding why markets fail - and how governments respond - is essential to strong Paper 1 and IA answers. This page gathers all blog entries related to market failure. Full breakdowns of diagrams and evaluation tools are available exclusively in the IB Economics course.

Organised Post Index

Externalities

Why Market Failure Happens - The Good, the Bad, and the Unpriced

Discover why market failure happens in IB Economics: externalities, merit and demerit goods, and the collapse of allocative efficiency.

When the Commons Go Chaotic: Understanding Market Failure in Common Pool Resources

Discover how common pool resources drive market failure, with lively examples from overfishing to deforestation. IB Economics made real and relatable.

Asymmetric Information: When One Side Knows Too Much (And Uses It) HL Only

Adverse selection, moral hazard, and dodgy deals - Asymmetric Information explained with real-world examples for IB Economics HL students.

Public Goods & Merit/Demerit Goods

Public Goods: Why You Can’t Charge Someone to Watch Fireworks

What do lighthouses, streetlights, and national defence have in common? They're public goods - and yes, freeloaders are part of the problem.

Government Intervention

When Governments Step In: How Economies Fight Externalities, One Awkward Policy at a Time

How do governments tackle pollution, plastic, and public bad behaviour? A fun, real-world guide to externalities for IB Economics students.

Application & Evaluation

How to Evaluate Market Failure in IB Essays

Quick Content:

Evaluation in IB essays isn’t about throwing in buzzwords and technical terms - it’s about balance and perspective. When answering market failure questions, go beyond stating that a policy “works” or “doesn’t work.” Ask yourself:

What assumptions is this policy based on?
Are there opportunity costs or unintended side effects?
Does it work equally well in high- vs low-income countries?
Analyse the stakeholders involved

Tip: Use the CBA approach - Costs, Benefits, and Alternatives - to structure your evaluations. You don’t need to be perfect; you just need to show awareness and knowledge of the complexity of the theme / matter and explore its multiple perspectives.

Real-World Market Failure Examples for Paper 1 and 2

Quick Content:

Struggling to find real-life examples of market failure for Paper 1 or Paper 2? Try these:

Plastic packaging waste - Negative externalities of consumption (global)
Congestion pricing in London or Singapore - Market-based solutions
Subsidised education and healthcare - Positive externalities + merit goods
Undervaccination in low-income countries - Underprovision of public / merit goods
EU Emissions Trading Scheme - Cap and trade (market-based intervention)
Alcohol and tobacco regulation - Demerit goods + price controls

Students aiming for 6s and 7s should be ready to drop 1–2 case-based examples into essays without sounding like a textbook or a robot for that matter. Keep it analytical.

For access to all key diagrams, model answers, and exam strategies,

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