IB Economics Week 2

The Week 2 revision tick list for U6th IB economists.

Week 2: Market Failure and Government Intervention

Revision Ticklist. Do you know…

Market Failure

Definition of Market Failure
Negative Externalities (Diagram and cures including limitiation to cures)
Positive Externalities (Diagram and cures including limitation to cures)
Monopoly as a form of market failure (Diagram showing welfare loss of monopoly, efficiency levels)
Benefits of Monopoly
Policies to deal with Monopoly (Regulation, deregulation and contestability)
Merit and Demerit Goods
Public Goods

Government Intervention

Indirect Taxes
Subsidies
Max/min prices
Quotas
Buffer Sticks

(Diagrams for all)

Practice Exam Questions

Short Answers (marked out of 10)

1. Why is pollution an example of market failure? Use a diagram to illustrate your answer.

2. A government is thinking of raising revenue through expenditure taxes. Why would a knowledge of price elasticities of demand be useful?

3. With the aid of a diagram describe how a knowledge of supply and demand analyis might help a local council which is looking for ways of reducing traffic congestion in its city centre.

Essay Questions

1 a) Why are environmental problems considered to be an example of market failure? [10]

b) To what extent can a government correct this failure? [15]

2a) Carefully distinguish between merit goods, demerit goods and public goods [10]

b) Evaluate the view that governments should always intervene in markets for goods such as alcohol and cigarettes [15]