Assessment map

Unit 2.8-2.10+2.12: Market failure

This page provides a map of the various assessments included in the unit, including short answers responses, essays and areas for discussion.  I have included a section A and section B blank essay template which will help your classes prepare their paper one essay responses
 

Unit 2.8: The meaning of market failure

SyllabusAssessment
Recognise that market failure is a failure to allocate resources efficiently, i.e. a failure of some markets to achieve allocative efficiency, resulting in an over-allocation of resources (over-provision of a good) or an under-allocation of resources (under-provision of a good)Short answer activities on Unit 2.8: Merit goods  

Socially optimum output: marginal social benefit (MSB) equals marginal social cost (MSC), (MSB = MSC): allocative efficiency; social/community surplus maximized)

Short answer activities on Unit 2.8: Merit goods  
Describe the meaning of externalities as the failure of the market to achieve a social optimum where MSB = MSCBeginning activities on Unit 2.8: Merit goods  

Unit 2.8: Positive externalities of production and consumption

SyllabusAssessment
Explain, using diagrams and examples, the concepts of positive externalities of production and consumption, and the welfare gain associated with the production or consumption of a good or serviceShort answer activities 1, Merit goods  
Explain that merit goods are goods whose consumption creates external benefitsActivity 11, paper one question Merit goods  plus short answer questions on the same page
Evaluate, using diagrams, the use of government responses, including subsidies, legislation, advertising to influence behaviour, and direct provision of goods and servicesActivities 1 - 6, Merit goods  

Unit 2.8: Negative externalities of production and consumption

SyllabusAssessment

Explain, using diagrams and examples, the concepts of negative externalities of production and consumption, and the welfare loss associated with the production or consumption of a good or service

Adverse selection and moral hazards 

Short answer activities 3 - 7 on Demerit goods  
Explain that demerit goods are goods whose consumption creates external costsActivities 3 - 7 on Demerit goods  
Evaluate, using diagrams, the use of policy responses, including market-based policies (piglovian taxation and tradable permits), education campaigns and government regulations to the problem of negative externalities of production and consumptionActivity 13, paper one style question on Demerit goods  
Strengths and limitations of government policies to correct
externalities and approaches to managing common pool
resources including:
• challenges involved in measurement of externalities
• degree of effectiveness
• consequences for stakeholders
Examination questions (activity 13) on page  Unit 2.8: Demerit goods  

Unit 2.8: Common access resources and the threat to sustainability

SyllabusAssessment
Explain, using examples, common access resourcesActivities 1 - 5 on Unit 2.9-2.10: Public goods and common access resources 

Apply the concept of sustainability to the problem of common access resources

Common pool resources
▪ Characteristics: Tragedy of commons, rivalrous but non-excludable
▪ Unsustainable production creating negative externalities

Activity 6 on Unit 2.9-2.10: Public goods and common access resources 

Activity 9, paper one question on Unit 2.9-2.10: Public goods and common access resources 

Examine the consequences of the lack of a pricing mechanism for common access resources in terms of goods being overused/ depleted/degraded as a result of activities of producers and consumers who do not pay for the resources that they use and that this poses a threat to sustainabilityActivity 9, paper one question on Unit 2.9-2.10: Public goods and common access resources 
Discuss, using negative externalities diagrams, the view that economic activity requiring the use of fossil fuels to satisfy demand poses a threat to sustainabilityActivities 6,7 on Demerit goods  
Discuss the view that the existence of poverty in economically less developed countries creates negative externalities through over exploitation of land for agriculture and that this poses a threat to sustainabilityAssessed in the development unit,  Unit 4: Global economy 
Evaluate, using diagrams, possible government responses to threats to sustainability, including legislation, carbon taxes, cap and trade schemes and funding for clean technologiesActivities 6,7 on Demerit goods  

Explain, using examples, that government responses to threats to sustainability are limited by the global nature of the problems and the lack of ownership of common access resources and that effective responses require international cooperation, Porter hypothesis

Assessed in the development unit,  Unit 4: Global economy 

Unit 2.9: Lack of public goods

SyllabusAssessment
Using the concepts of rivalry and excludability and providing examples, distinguish between public goods (non-rivalrous and non-excludable) and private goods (rivalrous and excludable)Activities 1 - 5 on  Unit 2.9-2.10: Public goods and common access resources 
Explain, with reference to the free rider problem, how the lack of public goods indicates market failure, porter hypothesisActivities 1 - 5 on  Unit 2.9-2.10: Public goods and common access resources 
Discuss the implications of the direct provision of public goods by government.  Strengths and limitations of approaches to managing common access resources
  • Importance of international cooperation
  • Global nature of sustainability issues
  • Challenges faced in international cooperation
  • Monitoring, enforcement
Activities 1 - 5 on  Unit 2.9-2.10: Public goods and common access resources 

Unit 2.10: Asymmetric information (HL only)

SyllabusAssessment
Explain, using examples, that market failure may occur when one party in an economic transaction (either the buyer or the seller) possesses more information than the other partyBroken candy game from Imperfect information (HL only) 

Evaluate possible government responses, including legislation, regulation and provision of information

Private responses: signalling and screening 

Activities 1,2,3 from Imperfect information (HL only) 

Unit 2.12: The market’s inability to achieve equity (HL only)

SyllabusAssessment

Workings of a free market economy may result in an unequal distribution of income, wealth and opportunity

Circular flow model to illustrate why the free market results in inequalities, accssed at: Circular flow of national income 

Activities on page: Unit 2.13: The market’s inability to achieve equity (HL only) 

Blank essay template available at:  Section A essay template

Section B essay template

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