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

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Introduction

Government intervention is a core component of the Pearson Edexcel AS Level Economics A course, introduced in Theme 1: Introduction to markets and market failure. Section 1.4.2 focuses on a crucial but sometimes overlooked concept — government failure. This follows naturally from earlier content on market failure and policy tools, and invites students to step back and evaluate what happens when well-intentioned interventions go wrong.

This part of the course is about encouraging critical thinking. It challenges students to scrutinise policy decisions using economic logic, supporting deeper understanding and laying the groundwork for evaluative responses in exam questions.

Key Concepts

In line with the official Pearson Edexcel specification for 1.4.2, students need to grasp:

  • Definition of government failure: When intervention in the market causes a net welfare loss.

  • Causes of government failure:

    • Distortion of price signals: Interventions may prevent prices from reflecting true supply and demand.

    • Unintended consequences: Policies can create new problems or worsen the original issue.

    • Excessive administrative costs: Cost of implementing the policy outweighs the benefits.

    • Information gaps: Governments may not have sufficient or accurate data to intervene effectively.

They should also be able to:

  • Use supply and demand diagrams to show potential negative effects of intervention.

  • Evaluate the effectiveness and limitations of policy tools introduced in 1.4.1.

  • Recognise the importance of trade-offs and opportunity cost in policymaking.

Real-World Relevance

Government failure is more than an academic label — it plays out in public debates constantly.

Example: Rent controls in major cities
Intended to make housing affordable, rent caps in places like Berlin led to reduced supply as landlords withdrew properties from the rental market. The result was tighter housing conditions, a classic case of distorted price signals.

Example: The Common Agricultural Policy (CAP)
The EU’s long-standing CAP involved heavy subsidies, which encouraged overproduction of certain crops and livestock. This created surplus waste, market distortion, and high public costs. The CAP has since undergone reforms to reduce these inefficiencies.

Example: Fuel subsidies
In some countries, governments subsidise petrol to keep transport affordable. However, this often benefits higher-income groups more, encourages overconsumption, and undermines environmental goals — illustrating unintended consequences and misallocated resources.

Bringing in these examples makes the abstract idea of government failure feel tangible and relevant, showing students that economic theory is alive in policy choices.

How It’s Assessed

Students will encounter government failure in Paper 1: Markets and Market Failure. Assessment tasks typically involve:

  • Short answer questions defining government failure and listing causes.

  • Data response tasks linking to real-world policy contexts.

  • Long-form evaluation questions such as:

    • Evaluate whether subsidies always lead to improved outcomes.

    • Assess whether government intervention is more likely to improve or worsen market outcomes.

Key command words include:

  • Explain – e.g. Explain how information failure can lead to government failure.

  • Analyse – e.g. Analyse the impact of price ceilings on the housing market.

  • Evaluate – e.g. Evaluate whether the costs of intervention outweigh the benefits in public healthcare provision.

Encouraging students to structure their arguments clearly — using point, evidence, analysis, and evaluation — is crucial for hitting higher mark bands.

Enterprise Skills Integration

This topic strengthens key enterprise capabilities:

  • Problem-solving: Identifying and unpicking unintended policy outcomes.

  • Evaluation and decision-making: Judging between competing solutions in messy scenarios.

  • Communication: Articulating arguments clearly with balance and evidence.

  • Numeracy: Interpreting data to support or challenge a government’s policy logic.

A practical classroom activity might involve students acting as policy advisers. Give them a real-world issue (e.g. obesity) and have them design an intervention, then present the potential risks of government failure. This combines critical thinking with creativity and persuasive communication.

Careers Links

Understanding government failure has direct relevance to careers in:

  • Public policy and government analysis – especially roles in departments like the Treasury, DEFRA, or the Department for Levelling Up.

  • Think tanks and NGOs – where analysing policy effectiveness is key.

  • Economics and finance – in roles where understanding regulation and incentives is crucial.

  • Environmental consultancy – evaluating sustainability policies and trade-offs.

This connects well with Gatsby Benchmarks 4 and 5, especially when linked to guest speakers, employer projects, or even mock policy panels. Students who can critique policy decisions are already thinking like economists.

Teaching Notes

Common misconceptions:

  • Students often think any government action is “good” or automatically fixes market failure. Encourage them to be sceptical, not cynical — ask, at what cost?

  • Another pitfall is failing to see the link between poor information and poor outcomes. Reinforce how limited or incorrect data skews decision-making.

Teaching strategies:

  • Use comparative thinking: Ask students to contrast successful and unsuccessful interventions.

  • Set up classroom debates: Was a specific government intervention a success or a failure? Back arguments with data.

  • Diagram drills: Use annotated diagrams to show welfare loss when government action leads to inefficiency.

 

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