The key terms associated with market failure: public good, merit good, demerit good, social benefits, external benefits, private benefits, social costs, external costs, private costs. With respect to public goods, merit and demerit goods, external costs and external benefits, abuse of monopoly power and factor immobility. Examples of market failure with respect to these areas only. The implications of misallocation of resources in respect of the over consumption of demerit goods and goods with external costs, and the under consumption of merit goods and goods with external benefits. Note: demand and supply diagrams relating to market failure are not required.

Classification of firms in terms of primary/secondary/tertiary sectors and private/public sector, and the relative size of firms. The advantages and disadvantages of small firms, the challenges facing small firms and reasons for their existence. Internal growth, for example increased market share. External growth, for example mergers. Examples, advantages and disadvantages of different types of mergers: horizontal, vertical, and conglomerate. How internal and external economies and diseconomies of scale can affect a firm/industry as the scale of production changes. Note: detailed knowledge of different types of structure of a firm is not required.