Explain why the use of petrol and diesel cars may be a source of market failure.

Use of petrol and diesel cars causes over-pollution to the environment, which is an externality in the economy. The overconsumption of petrol and diesel cars results in more pollution and emissions than is socially optimal. Therefore the free market equilibrium does not sufficiently allocate resources, overproducing cars at a price below the social optimum. This causes a deadweight loss to society (show in diagram), resulting in lower living standards than would be if cars were produced at the social optimum. This is a market failure as it is an inefficient allocation of resources in society.

SM
Answered by Seb M. Economics tutor

14173 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

How to answer elasticity questions


How should I structure the long answers in the exam?


Why does inflation decrease but prices continue to go up?


What are the conditions of perfect competition?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning