=OVER-OR-UNDER CONSUMPTION + resulting from EXTERNALITY (merit + demerit goods)+ INFO ASSYMETRY + PUBLIC GOODS (i.e. free rider +
non-exclusivity =
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Define the term ‘market failure’ (Extract A, line 14).
• Where the market/the price mechanism (1) leads to an inefficient allocation/misallocation/over allocation/under allocation of resources (1)
• A market/housing bubble in New Zealand/homelessness (1)
READ p81 - p94 = ALAIN ANDERTON book for making your concept clear on this topic.
The role of MARKET is to allocate/rationalize scare resources. In most cases, markets are an extremely efficient way/mechanism of doing this.
However, in some cases, markets fail in one of two ways:
PARTIAL MARKET FAILURE (over-production // under-production)
COMPLTE MARKET FAILURE (missing market).
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So, when the question is about OVER-CONSUMPTION or UNDER-CONSUMPTION, you have to present any one or more of the above mentioned.
MARKET FAILURE may result from other causes too, e.g. MONOPOLY, OLIGOPOLY etc., but thankfully those topics are NOT in your UNIT-01 syllabus so you don’t
have to write them here.
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TABLE OF QUESTIONS ON THIS TOPIC : MARKET FAILURE LEADING TO UNDER-CONSUMPTION + OVER-CONSUMPTION = EXTERNALITY =
MAY – 2023
PAPER -01
JAN – 2023
PAPER -01
NEW ZEALAND
OCT– 2022
PAPER -01
MAY– 2022
PAPER -01
e) With reference to Extract C, discuss the MICROECONOMIC EFFECTS of the
increase in smartphone manufacturing between 2011 and 2021. Refer to
EXTERNAL COSTS in your answer.
Illustrate your answer with an EXTERNALITIES DIAGRAM.
(e) With reference to Figure 1, Extract A and Extract B, discuss the likely
MICROECONOMIC EFFECTS of a housing MARKET BUBBLE in New Zealand. (14)
14. In 2019 the proportion of 25 to 34-year-old people who had received university
education was 70% in South Korea. In contrast it was 50% in the USA and only 28%
in Italy.
Evaluate possible microeconomic reasons why education might be
underconsumed.
EXTERNALITY
MARKET
BUBBLE
NEGATIVE
SIMPLE but
elaborate
JAN – 2022
PAPER -01
OCT – 2021
PAPER -01
MAY – 2021
PAPER -01
JAN– 2021
PAPER -01
(d) With reference to Extract B, examine two EXTERNAL COSTS
associated with the production of clothing.
0
8
External cost
(d) With reference to Extract B, examine two possible effects of
INFORMATION GAPS on the consumption of sugar.
0
8
INFORMATION
ASSYMETRY
OVERCONSUMPTION
OCT- MAY –
2020
(e) With reference to Extract B, discuss the EXTERNALITIES associated
with the production of palm oil.
Illustrate your answer with an appropriate diagram.
In the UK, in 2018, 10 million consumers travelling abroad did not
take out travel insurance. This is despite 30% of consumers with
travel insurance having to make a claim and the average medical bill
costing £5 620.
Evaluate reasons for the UNDERCONSUMPTION of travel insurance.
12. (e) Discuss reasons why the ‘quantity of EDUCATION is below the
SOCIAL OPTIMUM LEVEL’ (Extract B, lines 2 and 3). Refer to external
benefits in your answer.
Illustrate your answer with an appropriate diagram.
1
4
EXTERNALITY
POSITIVE +
NEGATIVE
2
0
UNDERCONSUMPTI
ON
MARKET
FAILURE
1
4
UNDERCONSUMPTI
ON
MARKET
FAILURE
Irrational behav
EDUCATION
12. (d) With reference to Extract B, examine the EXTERNAL COSTS
resulting from increased meat production.
0
8
EXTERNALITY
NEGATIVE
SIMPLE
‘The HPV vaccine is recommended for all adults in the USA because it
reduces the risk of cancer by 88%. If the HPV vaccine was given to all adults
925 000 cases of cancer would be prevented. However only 18.3% of adults
were vaccinated between 2011 and 2014 preventing 170 000 cases of
cancer.’
Evaluate why only 18.3% of adults were VACCINATED.
2
0
UNDERCONSUMPTI
ON
MARKET
FAILURE
VACCINATION
12. (d) With reference to Extract B, examine the EXTERNAL COSTS
associated with the production of cocoa beans.
8
EXTERNALITY
NEGATIVE
SIMPLE
OCT- MAY –
2020
JAN- 2020
MARKET FAILURE
NONE ?
OCT -2019
2019 MAY:
PLASTIC +
LAMB
2019 MAY:
PLASTIC +
LAMB
2019 JAN:
Cocoa
production