Syllabus: AQA - GCSE Economics
Module: How Markets Work
Lesson: 3.1.6 Market Failure

Introduction

In the AQA GCSE Economics syllabus, section 3.1.6 focuses on Market Failure, a key concept in understanding the limits of free markets. It builds on prior learning around supply, demand, and the price mechanism, introducing scenarios where markets don’t allocate resources efficiently. This part of the course bridges economic theory with pressing real-world issues, from pollution to public healthcare. Teachers can use it to spark debate, deepen critical thinking, and prepare students for assessment and future studies.

Key Concepts

Students are expected to grasp:

• Types of Market Failure: Including externalities, under-provision of public goods, and information gaps.

• Externalities: Differentiating between positive and negative externalities in consumption and production.

• Public Goods: Understanding why they are non-excludable and non-rivalrous, leading to free-rider problems.

• Information Gaps: Recognising how imperfect information can mislead decision-making by consumers or producers.

• Government Intervention: Identifying and evaluating methods such as taxation, subsidies, regulation, and provision of information.

This is syllabus-aligned content directly under AQA Section 3.1.6, encouraging students to apply models critically and reflect on policy effectiveness​.

Real-World Relevance

Market failure plays out daily. Take air pollution: a classic negative externality where the social cost exceeds the private cost. Despite technological advances, diesel emissions still impact health, particularly in cities like London or Manchester. The introduction of Clean Air Zones is a policy response aimed at internalising these externalities.

On the flip side, education is a merit good often under-consumed without government support. During the pandemic, the free laptop scheme illustrated how state intervention can help bridge information and access gaps—another form of market failure.

How It’s Assessed

AQA examines market failure through a mix of:

• Short-answer definitions (e.g., define ‘externality’),

• Data response questions involving real-world scenarios,

• Diagrams such as marginal cost and benefit graphs,

• Extended writing requiring evaluation of government policies (typically 6–9 mark questions).

Students should be confident interpreting and drawing diagrams, applying economic reasoning, and using command words like explain, analyse, and evaluate. Encourage use of precise terminology, especially when differentiating between private, external, and social costs/benefits.

Enterprise Skills Integration

Teaching market failure offers a natural entry point into key enterprise skills:

• Problem-solving: Evaluating the root causes of failures like pollution or obesity.

• Decision-making: Weighing policy trade-offs—should a government subsidise gym memberships or regulate sugary drinks?

• Critical thinking: Analysing unintended consequences of interventions, such as the impact of price floors in agriculture.

Use our MarketScope AI tool here to simulate market dynamics under different interventions—great for group activities that mimic policy decisions in the real world.

Careers Links

This topic connects with Gatsby Benchmarks 4 (linking curriculum learning to careers) and 5 (encounters with employers):

• Policy roles (e.g. civil service, local government)

• Environmental consultancy

• Public health and education planning

• Behavioural economics

Set up a task where students act as government advisors pitching a policy to correct a market failure. This builds presentation, analysis, and application skills—core workplace competencies.

Teaching Notes

Common pitfalls:

• Confusing externalities with private costs or failing to label diagrams accurately.

• Oversimplifying government failure—students should grasp that interventions can worsen outcomes if poorly designed.

Tips:

• Use live examples: think sugar tax, congestion charges, or the NHS.

• Pair diagrams with real news headlines for context.

• Stretch learners with debate prompts: “Should governments ban fast food advertising to children?”

Extension activities:

• Link to 3.2.3 Government objectives in the macro economy for cross-topic discussions.

• Use Enterprise Skills’ Pitch Deck Analyser to evaluate and improve student-written policy proposals.