**********OFFICIAL OCR ECONOMICS F581 13th MAY 2014 THREAD************

MPC is the S curve and MSC is the S1 curve. You can show MEC by annotating the triangle between the two curves (however showing this isn't necessary)

What would you write on an 18 marker about public goods? (I'm assuming the standard essay plan wouldn't work)

Is it okay to do a plan for the 18m in the answer space if you put it in a box and make it obvious where the essay starts?


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What would you write on an 18 marker about public goods? (I'm assuming the standard essay plan wouldn't work)

Of course. Some pupils prefer to put it on the last page in the booklet, but it really doesn't matter.

Can you please explain how a market can be allocatively efficient?

Thank you!

At AS level the definition is "where consumer welfare is maximised". Sometimes we also say that where the market clears (S=D) is also allocatively efficient but this is a poor definition.

Economics cares about Economic Efficiency, where productive and allocative efficiency is achieved. When economic efficiency has not been achieve we have market failure. In reality the market will always fail (you cannot achieve a theoretical position of productive and allocative efficiency being maximised), but it is the degree to which that is important.

So when we look at a government policy (tax, subsidy, information provision, regulation and polluter permits) we need to see how that impacts on welfare. We normally try to move our equilibrium to a more allocatively efficient point, hence when we show this point being achieved on a diagram we say we have solved the market failure.

Example of allocative efficiency rising:

Demerit goods (that produce unrealised harm to private individuals) are overconsumed and overvalued. When we tax them / ban them / give people the information about how nasty they are, either S or D shifts to the left and Quantity consumed falls, moving closer to the socially optimum level of consumption.

You would normally discuss this in your level L3 band 1 (where the market failure is) and L3 band 2 (how the market failure is solved).

Does this help?

At AS level the definition is "where consumer welfare is maximised". Sometimes we also say that where the market clears (S=D) is also allocatively efficient but this is a poor definition.

Economics cares about Economic Efficiency, where productive and allocative efficiency is achieved. When economic efficiency has not been achieve we have market failure. In reality the market will always fail (you cannot achieve a theoretical position of productive and allocative efficiency being maximised), but it is the degree to which that is important.

So when we look at a government policy (tax, subsidy, information provision, regulation and polluter permits) we need to see how that impacts on welfare. We normally try to move our equilibrium to a more allocatively efficient point, hence when we show this point being achieved on a diagram we say we have solved the market failure.

Example of allocative efficiency rising:

Demerit goods (that produce unrealised harm to private individuals) are overconsumed and overvalued. When we tax them / ban them / give people the information about how nasty they are, either S or D shifts to the left and Quantity consumed falls, moving closer to the socially optimum level of consumption.

You would normally discuss this in your level L3 band 1 (where the market failure is) and L3 band 2 (how the market failure is solved).

Does this help?

Can I ask does Price elasticity of supply gave any relevance to market failure?

If you shift the demand curve (i.e. provide information or have a demand side regulation such as health labels on products) then the effectiveness of the shift will depend on PES. If PES is inelastic it takes a very large shift to see any effect and the policy may not be effective, instead a supply side method may be more sensible.

Vice-versa as well, supply shift effectiveness depends on PED.

These points should be brought up in L4 after your have explained how your diagram solves the market failure.

May I ask how to gain 18 marks on the essay question if it based on a good that should be provided by the public or private sector?

Hey Everyone,
So i know it seems really late to ask but what is the best way to Structure 18 Mark Questions? And how many diagrams are generally needed for the questions? Any help would be really appreciated.

That's perfect.. Thank you!!!
So can I say that when the market moves closer to the socially optimum level of consumption, the market is allocatively efficient?
If so,, it means I've understood it!!
Thanks a lot!!

What would be some comment marks for Consumer surplus/ Producer surplus?

can someone explain pollution permits to me please?