Syllabus: Cambridge - IGCSE Economics
Module: 2.11 Mixed Economic System
Lesson: 2.11.2 Government Intervention to Address Market Failure
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Introduction
Why do governments step in when markets go wrong? This topic in the Cambridge IGCSE Economics syllabus explores how governments address problems like pollution, underfunded healthcare, or monopolies. Section 2.11.2 introduces key interventions that support economic efficiency and fairness — essential understanding for grasping how real-world economies operate.
This article supports the teaching of the Cambridge IGCSE Economics syllabus (0455), Unit 2.11.2: “Government intervention to address market failure” and is designed to help educators deliver it with clarity, context and confidence.
Key Concepts
The Cambridge IGCSE Economics syllabus outlines that students should understand:
The definition and types of market failure, including externalities, under-provision of public goods, and information gaps.
The role of government intervention in correcting these failures through taxes, subsidies, legislation, regulation, and direct provision.
The potential advantages and disadvantages of intervention, such as government failure, unintended consequences, and distortions.
How policies like pollution taxes or subsidies for merit goods can influence supply and demand.
Students are expected to apply these concepts using economic reasoning, not just describe mechanisms. Strong emphasis is placed on evaluation, particularly around effectiveness and limitations of intervention.
Real-World Relevance
Market failures are everywhere — and so are the interventions. Consider:
Plastic bag charges in the UK: Introduced in 2015, the 5p (now 10p) levy dramatically reduced single-use plastic bag consumption by over 95% at major retailers. A textbook example of correcting a negative externality through a price mechanism.
COVID-19 vaccine rollout: The UK government subsidised vaccine development and distribution — a clear case of direct provision and subsidisation of a merit good.
Congestion charges in London: The Congestion Charge and Ultra Low Emission Zone (ULEZ) are real-life instances of using charges to manage negative externalities and promote sustainability.
These examples help students see how theoretical tools apply to everyday economic decisions — and provide strong material for assessment and classroom discussion.
How It’s Assessed
This topic features in both Paper 1 (Multiple Choice) and Paper 2 (Structured Questions). Key assessment expectations include:
Define, explain, and analyse market failure and intervention strategies.
Apply knowledge to given scenarios (e.g., case studies of subsidies or pollution taxes).
Evaluate the effectiveness of interventions, using both benefits and drawbacks.
Command words include “explain”, “analyse”, “discuss”, and “evaluate”, all of which require tiered responses. Students should be encouraged to structure longer answers with definitions, examples, explanations, and balanced conclusions.
Tip: Students should be practised in drawing and interpreting simple supply and demand diagrams that show the impact of government policies.
Enterprise Skills Integration
This topic is rich in opportunities to develop:
Problem-solving: Analysing how best to correct specific types of market failure.
Critical thinking: Evaluating the trade-offs of government involvement.
Decision-making: Choosing between policy options in structured questions or group activities.
Communication: Justifying economic policy proposals in writing or discussion.
Consider role-play activities where students act as government advisers, debating options for tackling market failure in health, transport, or housing sectors.
Careers Links
Understanding government intervention ties directly to a range of careers — linking well with Gatsby Benchmark 4 (linking curriculum learning to careers) and Benchmark 5 (encounters with employers where possible).
Relevant career pathways include:
Policy analyst – evaluating the impact of public interventions.
Civil servant – working in departments like HM Treasury or the Department for Business and Trade.
Environmental economist – advising on externalities and sustainability policies.
Urban planner – applying economic tools to infrastructure and transport policy.
These roles require the analytical, evaluative and communication skills students practise in this topic.
Teaching Notes
Start with relatable failures: Pollution, NHS waiting times, housing shortages — students engage more when the problem feels real.
Diagram practice is key: Ensure students can sketch and interpret supply/demand curves showing shifts due to taxes or subsidies.
Use local case studies: ULEZ, sugar tax, or free school meals policies help anchor abstract ideas.
Common pitfalls: Watch for vague responses (“the government helps”) or confused terms (“external cost” vs “private cost”). Reinforce precise vocabulary.
Stretch activities: Get students to research and critique a recent government policy or design a proposal of their own.
