Evaluate whether government intervention is able to correct
market failure in education (20) :
1 >
-
Market failure is when the price k- providing necessary the
mechanism leads to a misallocation information needed for
of resources . The government inter- students to make that
vening can correct market failure decision of continuing
in education by setting a maxim- higher education , or subsid-
um price
to encourage low- its to fund
more expensive
income households from underson - courses like medicine .
suming higher education .
Pa Si
AD-
↳ Se
Ap-education is a tre externality
Pa welfare
gain
MPC = MSC ↳
↑ t ①, Q
DI
7
Q
>
-
MSB
MPB
Q
Q* Q I
-
AN-S , to be reduces price of uni
courses , and I quantity
AN >
-
At MPB Mpc the external benefit
=
supplied of the course . This
to society is ignored , so ↑ affordability for students
education is underconsume a in low-income dreds interna- =
at a quantity of 0
* and price lises the market failure .
of PA Therefore , there is
.
potential welfare gain shown = -
However , the universities might
by the shaded area . At the not spend these gov subsidies ,
social opt level external on funding
courses , so there
benefit is considered , and is an opp cost· There fore ,
.
the marketfailure of under- the market failure in
consumption is internalised education is not corrected .
Also , we assume that the gov .
= - However ,gou, intervention is not has perfect information
able to correct this tre extern- when choosing to subsidise
lity
a of consumption as the university courses · So , the
high dropout rate of low-income gov could either under or
·
uni students , may make the gov . over subsidise which in return,
intervention less effective might not be effective in
in internalising the externality correcting market failure as
,
Due to high droport rates of 9 % it could be spent perhaps on
there is a considerable amount less expensive courses like
of resources that are wasted . creative arts , instead of
A 725 million cost to recruit courses like medicine that
poorer backgrounded students carry a more expensive
drives a high opportunity burden .
cost
-
add a conclusion using AJIM
, Assess possible interventions designed to deal with market failure in the
energy drinks market or an industry of your choice (25marks)
1> A first intervention might be to impose addictive nature of energy drinks might
an indirect tax on high-caffeine energy even maintain current consumption levels ,
drinks . as well as providing
incentives for
black market sales and purchases of
Ap- Red Bull and Monster share annual jointly alternative caffeinated products , which
sales of 767m and 26 % market share in practice further strains the health
budget and future long run productivity .
AN-This is designed to internalise negative
externalities associated with excessive 1- A second intervention might be to
caffeine consumption , such as health set a minimum price on energy
related costs like Obesity or type-2 didbetes. drinks , a price floor set to discourage
By imposing an excise tax on manufacturers consumption .
of drinks , like Red Bull and Monster , the
gov-effectively increases the marginal AD > perhaps setting a minimum price
-
cost of production shifting the market
, per my of caffeine , such as
supply curve to the left and leading in -5/100 mg .
higher equilibrium prices as the additional
cost is passed on to consumers , perhaps AN A minimum price set above the market
resulting in lower quantity demands . This equilibrium inflates current prices
,
aligns with the principles of Pigorian of energy drinks within the industry .
tax , where a tax is levied to correct the This distorts the price mechanism ,
market failure as a result of external costs resulting in a market disequilibrium
not reflected in the market price . of excess supply . In theory consumer ,
Additionally , creation of government demand contracts to be following
revenue of area PeABPs , could be allocated a price rise from p* to Pmay. At
towards NHS initiatives which might this new equilibrium price , there
Mitigate social costs associated with is a greater disincentive + g consume
energy drink consumption . overly-caffeinated drinks , which as
a result internalises negative
price S2 S , +taX
externalities resulting from over -
=
N
↑ S,
production of energy drinks ,
predominantly by market leaders
↑
PLA Red bull and monster . Additionally ,
this inflated price most specifically
targets those on low/ marginalised real
Di
disposable incomes , seeing as at Pmax
Q2 Q I Quantity It would have a more regressive
-
and disproportionate impact , for
- The effectiveness of an indirect tax depends already squeezed
instance on
on the coefficient of price elasticity of demand household budgets .
for energy drinks . For instance , if PED for energy price
supply
a
j
excess S
drinks are -
0 3
.
, then an indirect tax might pmin
& 7
quite inefficient
"I
·
be at limiting caffeine
consumption : A 10 % increase in price only p
*
-
leads to a 3 % decrease in the quantity
demanded as energy drinks are relatively
inelastic in demand . As a result , the
①2 Q a Quantity
market failure in education (20) :
1 >
-
Market failure is when the price k- providing necessary the
mechanism leads to a misallocation information needed for
of resources . The government inter- students to make that
vening can correct market failure decision of continuing
in education by setting a maxim- higher education , or subsid-
um price
to encourage low- its to fund
more expensive
income households from underson - courses like medicine .
suming higher education .
Pa Si
AD-
↳ Se
Ap-education is a tre externality
Pa welfare
gain
MPC = MSC ↳
↑ t ①, Q
DI
7
Q
>
-
MSB
MPB
Q
Q* Q I
-
AN-S , to be reduces price of uni
courses , and I quantity
AN >
-
At MPB Mpc the external benefit
=
supplied of the course . This
to society is ignored , so ↑ affordability for students
education is underconsume a in low-income dreds interna- =
at a quantity of 0
* and price lises the market failure .
of PA Therefore , there is
.
potential welfare gain shown = -
However , the universities might
by the shaded area . At the not spend these gov subsidies ,
social opt level external on funding
courses , so there
benefit is considered , and is an opp cost· There fore ,
.
the marketfailure of under- the market failure in
consumption is internalised education is not corrected .
Also , we assume that the gov .
= - However ,gou, intervention is not has perfect information
able to correct this tre extern- when choosing to subsidise
lity
a of consumption as the university courses · So , the
high dropout rate of low-income gov could either under or
·
uni students , may make the gov . over subsidise which in return,
intervention less effective might not be effective in
in internalising the externality correcting market failure as
,
Due to high droport rates of 9 % it could be spent perhaps on
there is a considerable amount less expensive courses like
of resources that are wasted . creative arts , instead of
A 725 million cost to recruit courses like medicine that
poorer backgrounded students carry a more expensive
drives a high opportunity burden .
cost
-
add a conclusion using AJIM
, Assess possible interventions designed to deal with market failure in the
energy drinks market or an industry of your choice (25marks)
1> A first intervention might be to impose addictive nature of energy drinks might
an indirect tax on high-caffeine energy even maintain current consumption levels ,
drinks . as well as providing
incentives for
black market sales and purchases of
Ap- Red Bull and Monster share annual jointly alternative caffeinated products , which
sales of 767m and 26 % market share in practice further strains the health
budget and future long run productivity .
AN-This is designed to internalise negative
externalities associated with excessive 1- A second intervention might be to
caffeine consumption , such as health set a minimum price on energy
related costs like Obesity or type-2 didbetes. drinks , a price floor set to discourage
By imposing an excise tax on manufacturers consumption .
of drinks , like Red Bull and Monster , the
gov-effectively increases the marginal AD > perhaps setting a minimum price
-
cost of production shifting the market
, per my of caffeine , such as
supply curve to the left and leading in -5/100 mg .
higher equilibrium prices as the additional
cost is passed on to consumers , perhaps AN A minimum price set above the market
resulting in lower quantity demands . This equilibrium inflates current prices
,
aligns with the principles of Pigorian of energy drinks within the industry .
tax , where a tax is levied to correct the This distorts the price mechanism ,
market failure as a result of external costs resulting in a market disequilibrium
not reflected in the market price . of excess supply . In theory consumer ,
Additionally , creation of government demand contracts to be following
revenue of area PeABPs , could be allocated a price rise from p* to Pmay. At
towards NHS initiatives which might this new equilibrium price , there
Mitigate social costs associated with is a greater disincentive + g consume
energy drink consumption . overly-caffeinated drinks , which as
a result internalises negative
price S2 S , +taX
externalities resulting from over -
=
N
↑ S,
production of energy drinks ,
predominantly by market leaders
↑
PLA Red bull and monster . Additionally ,
this inflated price most specifically
targets those on low/ marginalised real
Di
disposable incomes , seeing as at Pmax
Q2 Q I Quantity It would have a more regressive
-
and disproportionate impact , for
- The effectiveness of an indirect tax depends already squeezed
instance on
on the coefficient of price elasticity of demand household budgets .
for energy drinks . For instance , if PED for energy price
supply
a
j
excess S
drinks are -
0 3
.
, then an indirect tax might pmin
& 7
quite inefficient
"I
·
be at limiting caffeine
consumption : A 10 % increase in price only p
*
-
leads to a 3 % decrease in the quantity
demanded as energy drinks are relatively
inelastic in demand . As a result , the
①2 Q a Quantity
