ILO:
a) Purpose of intervention with reference to market failure and using diagrams in various contexts:
o indirect taxation (ad valorem and specific)
o subsidies
o maximum and minimum prices
b) Other methods of government intervention:
o trade pollution permits
o state provision of public goods
o provision of information
o regulation
a) Purpose of intervention with reference to market failure and using diagrams in various contexts:
o indirect taxation (ad valorem and specific)
o subsidies
o maximum and minimum prices
b) Other methods of government intervention:
o trade pollution permits
o state provision of public goods
o provision of information
o regulation
Starter:
Identify the different goods you are ware of that have a tax added on them due to the existence of negative externalities.
Identify the different goods you are ware of that have a tax added on them due to the existence of negative externalities.
Indirect Tax
Watch the revision videos below to consolidate your knowledge on tax as a solution to MF:
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Y1/IB 28) Indirect Tax and Market Failure
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Negative Externalities and Indirect Taxes I A Lvele and IB Economics
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Tax related exam questions:
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Jamie Oliver: Time to get 'medieval' on sugar - Newsnight
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Would a sugar tax even work? The facts you need to know - Alberto Nardelli | Comment is Free
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Exam style questions based on the video:
Using a supply and demand diagram explain the impact of a sugar tax on the market. (5 marks)
In the above diagram identify and explain which economic agents would pay the tax.
Explain why the consumption of sugar may result in negative externalities. (3 marks)
Using an appropriate diagram explain how sugar could lead to market failure if it was allocated through market forces alone. (5 marks)
Assess the view that consumption of sugar is irrational behavior. (10 marks)
Discuss the extent to which a sugar tax would reduce the market failure associated to sugar. (15 marks)
Extended essays 2017 paper:
In 2015 a report by Public Health England recommended the imposition of a 20% tax on the sale of soft drinks that contain high levels of sugar. Evaluate the likely microeconomic effects of such a tax. (25 marks)
Using a supply and demand diagram explain the impact of a sugar tax on the market. (5 marks)
In the above diagram identify and explain which economic agents would pay the tax.
Explain why the consumption of sugar may result in negative externalities. (3 marks)
Using an appropriate diagram explain how sugar could lead to market failure if it was allocated through market forces alone. (5 marks)
Assess the view that consumption of sugar is irrational behavior. (10 marks)
Discuss the extent to which a sugar tax would reduce the market failure associated to sugar. (15 marks)
Extended essays 2017 paper:
In 2015 a report by Public Health England recommended the imposition of a 20% tax on the sale of soft drinks that contain high levels of sugar. Evaluate the likely microeconomic effects of such a tax. (25 marks)
Kahoot
tax quiz MCQ
Subsidies
Review the following subsidy videos to consolidate your knowledge of this topic:
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Government Subsidies: Key Analysis Diagrams I A Level and IB Economics
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Government Subsidies: Evaluation Arguments I A Level and IB Economics
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Example exam question: Assess the use of a subsidy's to promote the use of cleaner energy? (15 marks)
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How are electric cars subsidized? | Made in Germany
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Ban on sale of petrol and diesel cars by 2030 as UK announces “green revolution” - BBC News
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Minimum Price
What do you think is meant by a minimum price?
How would it influence our normal supply and demand diagram?
Why would Scotland consider placing one on alcohol?
Evaluate the effects that such Government intervention could have?
How would it influence our normal supply and demand diagram?
Why would Scotland consider placing one on alcohol?
Evaluate the effects that such Government intervention could have?
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Scotland introduces minimum alcohol pricing
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Maximum Price
Evaluate the micro economic effects of introducing a maximum price on energy?
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New energy price cap will 'save customers £75 a year' | ITV News
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Tenancy debate: can 'rent controls' work?
Related articles: General election 2019: What are rent controls? |
Recap
Provision of Information
What examples do you have of where the Government provide information on demerit and merit G/S?
Discuss how effective the following example would be and why?
Discuss how effective the following example would be and why?
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The Best Anti-Smoking Campaign Ever
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Fifty Years Of Anti-Drink Driving Ads
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Change4life Childhood Obesity
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The Best Powerful advertisement you will ever see
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40 Of The Most Powerful Social Issue Ads That Change Your Mind
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Example 25 mark exam questions:
1. Evaluate the case for Governments to enforce calorie information on food in shops and restaurants?
1. Evaluate the case for Governments to enforce calorie information on food in shops and restaurants?
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Live on BBC Breakfast - Calories & Food Labels | UK Dietitian Nichola Ludlam-Raine
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How many calories are in fast food?
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Additional reading:
'Four hours to walk off pizza calories' warning works, experts say
'Four hours to walk off pizza calories' warning works, experts say
Regulation
Watch the videos to understand the how regulation can help resolve market failure:
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Y1/IB 30) Regulation and Market Failure
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Regulations to address Negative Externalities I A Level and IB Economics
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Additional reading:
Regulations (Government Intervention)tutor2u
Laws & regulations economicshelp
Regulations (Government Intervention)tutor2u
Laws & regulations economicshelp
Case Study: Regulating Smoking
What different types of regulation are you aware of for smoking?
Based upon the information below and research, how effective has it been in reducing market failure?
What factors do you believe are preventing regulation solving the market failure?
Based upon the information below and research, how effective has it been in reducing market failure?
What factors do you believe are preventing regulation solving the market failure?
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The answer is plain - Campaign for plain cigarette packaging | Cancer Research UK
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Recent examples of regulation that could be used in an extended essay:
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Facing The Consequences of Extreme Gambling | Series 2 Episode 5
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Government Provision Public G/S
Research the following Government services regarding the EB & cost:
> Education
> Library
> Parks
> Street Lights
How could we represent Government provision via a diagram?
What are the advantages and disadvantages of this intervention?
> Education
> Library
> Parks
> Street Lights
How could we represent Government provision via a diagram?
What are the advantages and disadvantages of this intervention?
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State Provision (Direct Provision) and Market Failure
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Explanation of the diagram:
The perfectly inelastic supply curve represents the amount of quantity available. If it is the NHS lets assume there are 100 beds. No matter what price the Government charges patients there is 100 beds. That cannot change in the short run as capital is fixed (1 FOP). This is why its vertical, as quantity is fixed regardless of price. The demand curve represents what someone would be prepared to pay if they needed a bed if they were ill. At higher prices demand would be less as people can’t afford to pay it or don’t want to pay it. Hence why it is downward sloping. As we don’t charge to have a bed (NHS is free at the point of use) then demand is on the x axis where the price is zero. However supply is still fixed. Which is why there is a shortage of beds on the NHS as seen in the diagram. |
Case Study NHS
Using the videos below and your own research. Assess if the NHS would benefit from being privatised? (10 marks)
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The National Health Service explained | Guardian Explainers
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Would the NHS benefit from privatisation? | Guardian Live
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Pollution Permits
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Explain why is CO2 emission is an example of MF?
(5 marks)
A visual tour of the world's CO2 emissions
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Assess the risks of using pollution permits as a form of Government intervention? (10 marks)
How Tata Steel made millions from EU pollution permits - BBC News
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Pollution Permits Theory
Watch the videos on how to draw the diagram and then the analysis video which evaluates how effective it is.
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Tradable Pollution Permits to Solve Market Failure
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A Level Economics Evaluation Skills: Carbon Trading & Carbon Taxation
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Additional reading:
Policies to reduce pollution |
Tutor2u online lesson:
Pollution permits |
Government Intervention Revision Activity
Why would waste in the ocean be an example of negative externalities?
Assess the 4 methods in this video to reduce the external cost of rubbish.
Assess the 4 methods in this video to reduce the external cost of rubbish.
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How will we deal with all of the world’s rubbish? - BBC News
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Behavioural Economics
Although not part of your specification, this is where the current trend of economic thinking is occurring.
Using Nudge to Stop Cigarette Litter | Hubbub Vlog