Economics-Market forces HELP

Hi guys! I'm studying AS economics and I'm really concerned about the upcoming economics exam. My exam borad is Aqa and the last question is a 25 Mark question which i find really challenging especially when the question is about Market forces. I struggle to develop my answer and fail to write more than a paragraph!!
I would really appreciate some help about how to develop answers concerning Market forces. Thanks!

Reply 1

Eco_star

This is a question I struggle with. "Evaluate the case for and against leaving the provision of renewable energy to Market forces"

(edited 13 years ago)

Reply 2

Tateco

Original post by Eco_star

This is a question I struggle with. "Evaluate the case for and against leaving the provision of renewable energy to Market forces"

When asked a question like this involving market forces, It is basically the same as "For and Against government intervention in the provision of renewable energy". (if it helps for you to read it this way instead?)

They want you to discuss how market forces (the price mechanism; rationing, signalling, incentive etc.) are currently working in the energy sector.

Then talk about why they are failing e.g. renewable energy gives off positive externalities which aren't accounted for by the price mechanism, this means renewable energy is a merit good and is under provided in a free market economy, (draw merit good graph)

Then discuss possible methods of intervention to increase the provision of renewable energy, and then why the government might fail

Then finish off with a summary of whether you think it would be best left to market forces (is it worth the cost of the intervention?)

That's how I would answer it anyway, I've got the same exam as you, good luck! :smile:

Reply 3

Eco_star

Thanks a lot mate! Really helpful, and especially the way you rephrased the question. The words "Market forces" freak me out!
Hope you do well mate, good luck!

Reply 4

Tateco

Original post by Eco_star

Thanks a lot mate! Really helpful, and especially the way you rephrased the question. The words "Market forces" freak me out!
Hope you do well mate, good luck!

No problem :smile:

Good luck to you too! let me know how you do :smile:

Reply 5

Eco_star

"They want you to discuss how market forces (the price mechanism; rationing, signalling, incentive etc.) are currently working in the energy sector."

I tried to write an answer to this question but I struggled with the bit above, everything else was fine apart from that bit.
Could you please write me a small paragraph to just show me how you would answer that part of the question? Thanks (sorry if I'm being a pain)

Reply 6

Eco_star

Merry Christmas btw :smile:

Reply 7

Tateco

Original post by Eco_star

"If the energy sector is to work without government intervention then the price mechanism (market forces) must be working well to ensure an efficient, and fair resource allocation.

This is how market forces work, demonstrated through the price mechanism. They act as an invisible hand and gives the consumers what they want at a price that is fair:
The rationing function is where excess demand rations the supply of the product and the price is bid up due to high demand. This brings the signalling function whereby suppliers see increasing prices. This makes an incentive for suppliers to make profit and they expand supply, increasing output, thereby reducing the price for consumers.

However, the price mechanism does not always work well. For example if externalities are present or there is asymmetric information across the industry, then the price mechanism can cause undesirable outcomes. This is when the government may need to intervene to improve the resource allocation of the market in question."

That's how you could introduce the concept of market forces into your essay, it might be really bad, I did it in a rush but its just to give you an idea. You would then go on to suggest some possible market failures in the sector, and then discuss possible methods of intervention, possible government failure arising from this and then summarise whether the industry should be left under the control of market forces.

Merry Chirstmas :P

Reply 8

Eco_star