IB Diploma presentation on Market Failure concepts.

1. IB Economics Topic 2.4 Describe market failure and the government interventions to correct the market failure ISS International, Singapore Mr. Andrew McCarthy

2. Describe market failure and the government interventions to correct the market failure

3. Econ 2.4 Learning What are examples of market failure? What is a government Intervention? How, when and why does the government intervene in the market Notes and Readings… Pg 134 – 146 Course Companion Pg 327 – 337 Sloman

7. What tools does the government use to solve these problems? Passive smoking Public transport Quality education Safety for cyclists Unequal income distribution Affordable medicine Obesity Drink driving Street lighting Recycling Cigarettes Carbon Emissions Range of Government Interventions

8. Positive Externality of Production MPC MSB MSC P$ Q Job training and education at work

9. Negative Externality of Production MSC MSB MPC P$ Q Nuclear Power Generation

10. Negative Externality of Consumption MSB MPB MSC P$ Q Alcohol Consumption

11. Positive Externality of Consumption MPB MSB MSC P$ Q Education at University

12. Graphing externalities

15. Econ 3.3 Episode Two - Learning What are public and private goods? Why are public goods not normally provided by the market? Notes and Readings… Pg 124 – 125, 130 of Telfer Bible How does the state collectively provide public goods?

17. Collective Provision of Goods

19. Common examples of Market Failure

20. Econ 3.3 Episode Three - Learning What are spillover costs and benefits? How do externalities relate to consumption or production? Notes and Readings… Pg 102 – 106 of Telfar Bible How does government intervene to reach a desired social equilibrium?

21. Examples of Market Failures and Government Intervention Use summary handouts for ideas, practise Q4, 2005 exam Situation Example Intervention People on low incomes cant afford what is seen as a merit good Visits to the doctor Subsidise visits to the doctor for those on low incomes. Production of a good results in significant negative spillover costs ? ? A demerit good is popular in the marketplace ? ? A privately produced product results in significant benefits for third parties in the local region. ? ? Consumption of a good generates spillover benefits for other consumers ? ?

28. Negative Externality of Consumption - Tax Burdens MSB MPB MSC P$ Q Alcohol Consumption Very elastic demand, inelastic supply MSC + tax

29. Tax Burdens and Elasticities Consumer / Producer Surplus

31. Practice Question – 2008 Exam