Fat Tax vs Traffic Light System
Economics 3.4A
Achievement Standard Economics 91402: Demonstrate understanding of government interventions to correct market failures
Rosie Jewitt
1. What is market failure?
2. What is the issue to be addressed? Why is this market failure?
3. What are the options of how to address the issue? And what is the good and bad
4. Which is the best option?
1. Introduction - What is market failure
Government intervention occurs when markets are not working optimally i.e. there is a Pareto sub-optimal allocation of resources in a market/industry i.e. there is market failure. Market failure occurs when in a freely- functioning market allocative efficiency is not achieved. Failing to preform allocatively efficiently means that the market is not operating optimally and there is a loss of economic and social welfare. Governments intervene when this occurs to attempt to correct the failure and bring about allocative efficiency and create a more efficient market. Often governments will justify the intervention saying it is in public interest. Market failure occurs when the socially optimal level in the market is not occurring.
Market failure causes; productive and allocate inefficiency. Production inefficiency means producers and not maximizing output. Allocative efficiency means resources are not correctly allocated to the production of goods and services i.e. resources may be allocated to producing a good not highly demanded; these resources could have been used to produce high demand goods.
The market can fail for a range of reasons
1) Negative externalities - . Negative externalities are the negative impacts on the third party. The social cost Private cost + External Cost and Social Benefit = Private benefit + External benefit. If externalities do not exist the social and private costs and social and private benefits are the same. Externalities create a divergence between private and social costs of production and private and social benefits of consumption.
Achievement Standard Economics 91402: Demonstrate understanding of government interventions to correct market failures
Rosie Jewitt
1. What is market failure?
2. What is the issue to be addressed? Why is this market failure?
3. What are the options of how to address the issue? And what is the good and bad
4. Which is the best option?
1. Introduction - What is market failure
Government intervention occurs when markets are not working optimally i.e. there is a Pareto sub-optimal allocation of resources in a market/industry i.e. there is market failure. Market failure occurs when in a freely- functioning market allocative efficiency is not achieved. Failing to preform allocatively efficiently means that the market is not operating optimally and there is a loss of economic and social welfare. Governments intervene when this occurs to attempt to correct the failure and bring about allocative efficiency and create a more efficient market. Often governments will justify the intervention saying it is in public interest. Market failure occurs when the socially optimal level in the market is not occurring.
Market failure causes; productive and allocate inefficiency. Production inefficiency means producers and not maximizing output. Allocative efficiency means resources are not correctly allocated to the production of goods and services i.e. resources may be allocated to producing a good not highly demanded; these resources could have been used to produce high demand goods.
The market can fail for a range of reasons
1) Negative externalities - . Negative externalities are the negative impacts on the third party. The social cost Private cost + External Cost and Social Benefit = Private benefit + External benefit. If externalities do not exist the social and private costs and social and private benefits are the same. Externalities create a divergence between private and social costs of production and private and social benefits of consumption.