Market Failure Externalities and Government Intervention Practice Questions | A-Level Economics

Market Failure Externalities and Government Intervention

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A city has heavy traffic congestion. Each driver considers only fuel, time, and parking paid personally, but ignores delays imposed on other road users. Which statement is most accurate about the market outcome and why?

Select one option.

Traffic volume will be below the socially optimal level because marginal social benefit exceeds marginal private benefit
Traffic volume will be socially optimal because drivers face the full opportunity cost of travel time
Traffic volume will be below the socially optimal level because marginal social cost is below marginal private cost
Traffic volume will be above the socially optimal level because marginal social cost exceeds marginal private cost
Traffic volume will be socially optimal because congestion is self-correcting through price changes

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