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OCR F581 Markets in Action - 11 May 2015

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Original post by *Stefan*
The supply curve remains static regardless of efficient or inefficient firms; don't forget -the number of permits is originally fixed by the government.

The firms sell the permits the government gave them (ie the fixed number), so supply does not shift.

so how are you explaining how they change the equilibrium to correct the market failure. the supply of the permits is static yes but the firms themselves have variable supply dependent on factors of production, costs etc...
Original post by azo
Thanks all good points. I don't understand the bold though, why would inelastic PES mean less effect? Is it that it will take a long time for producers to adjust quantity of products so will just sell stock for lower prices and so the quantity won't change for a while so it will continue to be over consumed (for a while) ?

In all honesty I am not sure about the details as to why it happens but based on the graph a more price inelastic supply curve would mean that any changes in demand would have lower effects on quantity. Hopefully someone can tell you the reason as to why this is the case but I myself am not sure, sorry.
Original post by katiexmc
so how are you explaining how they change the equilibrium to correct the market failure. the supply of the permits is static yes but the firms themselves have variable supply dependent on factors of production, costs etc...


The firms themselves do not change the equilibrium for the purpose of correcting market failure -this is what the government does.

The firms affect that equilibrium price, through demand -if demand is very high, the price will increase and vice versa.

The firms themselves do have variable supply, but that does not affect the main diagram of the TPs. The only one that can affect the perfectly inelastic supply curve is the government (ie if they want to increase permits, the curve would shift to the right, whereas if they wanted to tighten supply further, the curve would shift to the left).
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Yousf
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Wow im getting confused does the inelastic supply curve for tradeable permits shift to the left or remain constant
how can you get 98/100 when it's out of 60?
Original post by Yousf
Wow im getting confused does the inelastic supply curve for tradeable permits shift to the left or remain constant


In short, it only shifts (either to the left or the right, depends) when the government decides to change the number of permits allowed.
Original post by Yousf
Wow im getting confused does the inelastic supply curve for tradeable permits shift to the left or remain constant


i'm lost now too. I am doing A2 (resitting this exam to get more UMS) so i have been learning this unit for 2 years and have never come across the theory that the firms dont change the equilibrium!

i have been taught it in the way i have explained above, where the firms supply increases/decreases. i dont understand how you could analyse the fact that a perfectly inelastic supply curve could correct market failure for 18 marks!
Original post by katiexmc
i'm lost now too. I am doing A2 (resitting this exam to get more UMS) so i have been learning this unit for 2 years and have never come across the theory that the firms dont change the equilibrium!

i have been taught it in the way i have explained above, where the firms supply increases/decreases. i dont understand how you could analyse the fact that a perfectly inelastic supply curve could correct market failure for 18 marks!


It is not needed, you only need to know - tradable pollution permits = decreases supply
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Original post by *Stefan*
In short, it only shifts (either to the left or the right, depends) when the government decides to change the number of permits allowed.


Ok, so what exactly should i draw in the exam. Shall i start with a normal inelastic supply curve. And then maybe in the depth of my answer towards the centre, draw a diagram moving the supply curve to the left?
Original post by *Stefan*
The firms themselves do not change the equilibrium for the purpose of correcting market failure -this is what the government does.

The firms affect that equilibrium price, through demand -if demand is very high, the price will increase and vice versa.

The firms themselves do have variable supply, but that does not affect the main diagram of the TPs. The only one that can affect the perfectly inelastic supply curve is the government (ie if they want to increase permits, the curve would shift to the right, whereas if they wanted to tighten supply further, the curve would shift to the left).


i understand the firms dont change the equilibrium for the purpose of correcting market failure but if they are forced to buy another permit because they pollute too much then their costs increase and so they must decrease their supply, leading to a decrease in quantity on the diagram illustrating an effective reduction of the negative externalities caused.
Original post by katiexmc
i'm lost now too. I am doing A2 (resitting this exam to get more UMS) so i have been learning this unit for 2 years and have never come across the theory that the firms dont change the equilibrium!

i have been taught it in the way i have explained above, where the firms supply increases/decreases. i dont understand how you could analyse the fact that a perfectly inelastic supply curve could correct market failure for 18 marks!


Erm...

The firms change the equilibrium price (depending on the demand of TPs) -firms cannot shift the supply curve, as that would imply that they can create TPs out of thin air (which defeats the whole purpose of the policy).

The only one that can shift the supply curve of the tradeable permits is the government.

You're confusing two different things now. The supply curve is perfectly inelastic in an attempt to bring pollution to a socially acceptable level (as defined by the government).

It basically serves to prevent excessive pollution.

Don't confuse the TP diagram with the diagram on the goods that the affected firms produce.

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(edited 8 years ago)
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Original post by keynes24
It is not needed, you only need to know - tradable pollution permits = decreases supply



Should i draw 2 diagrams for a tradeable permits one with a simple inelastic supply curve, and 2nd, the supply curve shifted to the left?
Original post by *Stefan*
Erm...

The firms change the equilibrium price (depending on the demand of TPs) -firms cannot shift the supply curve, as that would imply that they can create TPs out of thin air (which defeats the whole purpose of the policy).

The only one that can shift the supply curve is the government.

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im explaining that the firms supply curve must shift following an increase in costs. i understand 100% that there is a fixed amount of permits available and that supply can only be changed by the government... but if we are to analyse how they can be used to correct market failure i dont see how simply showing and inelastic supply curve is enough... t
Original post by Yousf
Should i draw 2 diagrams for a tradeable permits one with a simple inelastic supply curve, and 2nd, the supply curve shifted to the left?


You only need one diagram, it doesn't have to be perfectly inelastic. Any standard diagram will be fine.
Original post by TheRegista
how can you get 98/100 when it's out of 60?


98/100 is the UMS points

You convert your raw marks, e.g. 48/60 into UMS point and it becomes like 72/100 UMS points


Some people care about UMS more because let say to get
A = 160UMS
B = 140UMS

You got 40 raw marks in unit 1, that worth 80UMS
You got 38 raw marks in unit 2, that worth 76UMS
Overall UMS = 156UMS ...so a high B...So you are off by 4UMS for an A which probably only 2 raw marks...

These are not the real figures but hope you understand how the UMS and raw mark works.

So in AS you can get high A and A, and then in A2 get B and B as long as they all add up to the 160 UMS to get an A
(edited 8 years ago)
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Original post by keynes24
You only need one diagram, it doesn't have to be perfectly inelastic. Any standard diagram will be fine.


Don't i need to show any shifts?
Original post by katiexmc
im explaining that the firms supply curve must shift following an increase in costs. i understand 100% that there is a fixed amount of permits available and that supply can only be changed by the government... but if we are to analyse how they can be used to correct market failure i dont see how simply showing and inelastic supply curve is enough... t


Yes, read above. The supply curve for the goods that the affected firms produce will shift to the left (as they can only produce so much). This has nothing to do with the TP diagram itself though. (Read pages 71-72 of the main textbook)

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Original post by *Stefan*
Yes, read above. The supply curve for the goods that the affected firms produce will shift to the left (as they can only produce so much). This has nothing to do with the TP diagram itself though. (Read pages 71-72 of the main textbook)

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thats what ive been trying to explain, the supply of permits and the supply of the affected polluting firms are entirely different diagrams...
Original post by Yousf
Don't i need to show any shifts?

Please check my posts carefully to avoid confusion , I said decrease in supply and one diagram.
Original post by katiexmc
thats what ive been trying to explain, the supply of permits and the supply of the affected polluting firms are entirely different diagrams...


Haha okay... Quite the mishap there.

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