Syllabus: Pearson - Pearson - A Level Economics
Module: 1.4 Government Intervention
Lesson: 1.4.2 Government Failure

Introduction

Government failure is part of Theme 1 in the Pearson Edexcel A Level Economics A syllabus. It comes at the end of the microeconomic sequence in Section 1.4 and challenges students to apply critical thinking to policy outcomes. After understanding why governments intervene in markets to correct failures, students must now assess when these interventions backfire.

This is more than theory. It’s where economics meets politics, policy, and unintended consequences. Teaching this well helps students not only master the spec but also build the kind of evaluative thinking that examiners reward and future employers value.

Key Concepts

The Pearson Edexcel A Level spec outlines government failure as a situation where intervention leads to a net welfare loss, making outcomes worse rather than better. Students need to grasp the following:

• Definition: Government failure occurs when intervention in the market leads to inefficient allocation of resources or a decline in overall welfare.

• Causes:

  • Distortion of price signals (e.g. price caps causing shortages)

  • Unintended consequences (e.g. black markets)

  • Excessive administrative costs (costs of enforcement outweigh benefits)

  • Information gaps (poor data leading to poor policy)

• Examples of failure: Subsidies encouraging overproduction, housing benefit inflating rents, or minimum alcohol pricing driving illicit sales.

These are often diagram-free but demand sharp application and evaluation. Students must not just describe failures but explain why they happen and how outcomes differ from intentions.

Real-World Relevance

Government failure is visible in headlines every week. Use these examples to make it stick:

• Energy Price Caps (UK, 2022–2023): Intended to protect consumers, they distorted incentives for suppliers and led to reduced competition.

• Rent Controls in Berlin: Aimed at affordability, the cap reduced rental supply and led to a rise in illegal subletting and lower property maintenance.

• Ethanol Subsidies in the US: Backed as a green initiative, they led to over-farming and a spike in global food prices, hitting poorer nations hardest.

• Plastic Bag Charges vs. Free Replacements: A well-meaning UK policy to cut plastic waste led to unintended spikes in “bags for life” consumption.

These aren’t just useful case studies — they’re a reminder that intervention is complex and no policy exists in a vacuum.

How It’s Assessed

In Paper 1 (Markets and Business Behaviour), students could be assessed on government failure as part of a larger data-response or essay question. Expect:

• Command words like explain, analyse, evaluate

• Application-based questions, requiring examples of market failure and resulting government action

• 12- and 25-mark questions, especially when students must weigh up if intervention improved outcomes or made them worse

• Strong answers must:

  • Show clear understanding of why the intervention happened

  • Evaluate the effectiveness using real-world examples

  • Consider alternative options or suggest improvements

Encourage students to use the structure: define → apply → analyse → evaluate.

Enterprise Skills Integration

This topic is a natural fit for enterprise skills. Students need to:

• Problem-solve: Identify where policies went wrong and why.

• Critically evaluate: Balance the pros and cons of interventions.

• Make informed judgements: Suggest realistic alternatives based on evidence.

• Communicate clearly: Articulate complex ideas in written form under exam pressure.

You could set up a mini policy lab: groups take a policy failure (e.g. sugar tax backlash) and propose a better solution, pitching it in a 5-minute presentation.

Careers Links

This content hits Gatsby Benchmarks 4 (curriculum linked to careers) and 5 (encounters with employers).

Relevant roles:

• Public Policy Analyst: Understanding how government policies affect outcomes.

• Economist: Advising on efficient interventions.

• Urban Planner: Considering how housing policy affects real communities.

• Regulatory Affairs Specialist: Analysing costs, benefits, and risks of compliance.

You could link with local government officials or invite someone in policy or housing to speak about “what happens when good ideas go wrong”.

Teaching Notes

Top tips:

• Use timelines: map out what the government intended, what happened, and why it failed.

• Encourage counterarguments: not all failures are total. Some deliver partial success.

• Avoid simple “it didn’t work” statements. Push for nuance.

• Reinforce terminology: net welfare loss, price signals, distortion, unintended consequences.

Common pitfalls:

• Students often forget the original market failure — remind them to start with the why.

• Vague examples weaken high-mark questions. Encourage specifics.

Extension ideas:

• Have students write a “letter to the minister” analysing a failed policy.

• Run a classroom debate: “This House believes governments should stay out of markets.”