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Unit 3 - Government
microeconomic intervention (AS
Level)
Chapter 12: Reasons for government intervention in markets
over/underconsumption + non-provision
Controlling prices in the market
Chapter 13: Methods and effects of government intervention in markets
Indirect taxes
Subsidies
Direct provision
maximum price
minimum price
buffer stock and provision of information
Chapter 14: Addressing income and wealth inequality
Chapter 12: Reasons for government intervention in
markets
Key words and tips Notes
Market failure - when the free market failure is basically when resources
market does not make the best are allocated inefficiently
use of scarce resources
Unit 3 - Government microeconomic intervention (AS Level) 1
, TIP: lighthouse is the most efficient allocation = if every change that
common, basic and secure can make someone better off will make
example to mention in answer someone worse off
market failure occurs when the price
mechanims fails to take into account all of
the costs and benefits that are necessary to
produce or consume a product
markets are not perfect due to inefficient
production and consumers not having
perfect information to be able to make
informed choices
the basic examples of market failure:
lack of public goods
underproduction of merit goods
overconsumption of demerit goods
information failure
over/underconsumption + non-
provision
public goods are consumed collectively and
their use by one person doesnt make it less
available to others
public goods have free rider problem
cant exactly charge anyone for consumption
of a public good ⇒ this causes a lack of
profit incentive for private sector to provide
public good
so public goods would not be provided in a
completely free market, because there is no
way demand for them can be signalled
so public goods are funded and provided by
tax revenue by governemnt
this has an issue of an opportunity cost
on other possible government
Unit 3 - Government microeconomic intervention (AS Level) 2
Unit 3 - Government
microeconomic intervention (AS
Level)
Chapter 12: Reasons for government intervention in markets
over/underconsumption + non-provision
Controlling prices in the market
Chapter 13: Methods and effects of government intervention in markets
Indirect taxes
Subsidies
Direct provision
maximum price
minimum price
buffer stock and provision of information
Chapter 14: Addressing income and wealth inequality
Chapter 12: Reasons for government intervention in
markets
Key words and tips Notes
Market failure - when the free market failure is basically when resources
market does not make the best are allocated inefficiently
use of scarce resources
Unit 3 - Government microeconomic intervention (AS Level) 1
, TIP: lighthouse is the most efficient allocation = if every change that
common, basic and secure can make someone better off will make
example to mention in answer someone worse off
market failure occurs when the price
mechanims fails to take into account all of
the costs and benefits that are necessary to
produce or consume a product
markets are not perfect due to inefficient
production and consumers not having
perfect information to be able to make
informed choices
the basic examples of market failure:
lack of public goods
underproduction of merit goods
overconsumption of demerit goods
information failure
over/underconsumption + non-
provision
public goods are consumed collectively and
their use by one person doesnt make it less
available to others
public goods have free rider problem
cant exactly charge anyone for consumption
of a public good ⇒ this causes a lack of
profit incentive for private sector to provide
public good
so public goods would not be provided in a
completely free market, because there is no
way demand for them can be signalled
so public goods are funded and provided by
tax revenue by governemnt
this has an issue of an opportunity cost
on other possible government
Unit 3 - Government microeconomic intervention (AS Level) 2
