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OCR F581 Markets in Action - 11 May 2015

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I think it depends, for example in May 2011 paper, after talking about subsidy, we can say that the product is also a merit good since it's under consumed because of consumer's lack of information, so alternatively, the government can provide more information.

Another example in Jan 13, beside subsidy, the government can use regulation, relaxing in regulation will encourage firms to increase production.

I've done these 2 questions and got 18 mark(teacher marked it ), i can send you that if you want, just give me your email
Original post by anndz3007
I think it depends, for example in May 2011 paper, after talking about subsidy, we can say that the product is also a merit good since it's under consumed because of consumer's lack of information, so alternatively, the government can provide more information.

Another example in Jan 13, beside subsidy, the government can use regulation, relaxing in regulation will encourage firms to increase production.

I've done these 2 questions and got 18 mark(teacher marked it ), i can send you that if you want, just give me your email


can you send it to me too pls? thanks xD
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Avatar for Yousf
Yousf
13
HELP!!what does an increase from p1-p2 mean when explaning tradeable permits. Is it a rise in cost of production???
Right might have to bash out a few 18 mark essay structures.

Regulation, indirect taxes, subsidies, pollution permits and anything else?
Original post by Super199
What are the depends upon with subsidies?
An alternative solution would be reduction in indirect taxes?

Alternatives solutions depends on the context/market
I'll start off with subsidies - something to do with market failure and merit goods

L1 - Definition of subsidy, market failure and merit goods

L2 - Example of a subsidy and merit goods. Say merit goods have positive externalities and they are underconsumed and underproduced.

L3 - Supply and demand diagram for subsidy. Shift in supply to right from S to S1. Decrease price from P to P1. Will say it reduces cost of production to producer. Incentives producer to increase the production - this is shown by increase from Q to Q1.

L3 band 2 - Moves market closer to socially optimum level. Increases allocative efficiency as it solves the problem of underproduction and underconsumption. Gets the MSB closer to MSC I think? Can someone explain which way negative and positive externlaities work. What are you trying to get closer to?

L4 - Depends on context - Opportunity cost to local authorities and difficult to decide on the extent on the subsidy. Who gets the subsidy?

L4 - Alternative method could be providing information as that will close the information gap and reduce underconsumption and underproduction.

L4- Maybe reduce indirect taxes so supply shifts right lowers cost of production which will improve production. Increases welfare and moves it closer to socially optimum level.

Conclusion - Subsidies are good because it lowers the firms cost of production ... Can someone explain how you get the last 2 marks??
Keynes24, what a username
Original post by Yousf
HELP!!what does an increase from p1-p2 mean when explaning tradeable permits. Is it a rise in cost of production???


yes
Will anyone be making an unofficial mark scheme after the exam?
Original post by Yousf
HELP!!what does an increase from p1-p2 mean when explaning tradeable permits. Is it a rise in cost of production???


No, it means a rise in the final price of product(s), which is usually CAUSED by a rise in costs of production
Original post by justfly
Will anyone be making an unofficial mark scheme after the exam?

I can provide some answers
(edited 8 years ago)
Regulation next - I am going to say in the context of de-merit goods (market failure).

L1 - Definition of regulation and de-merit goods. Say de-merit goods lead to negative externalities this is where the social costs > private costs.

L2 - Examples of de-merit goods (cigarettes) and what sort of regulation could be used. Over 18 to smoke. How it leads to market failure. Overconsumed and overproduced possibly due to information failure. Health warning on packages.

L3 - Diagram of supply and demand. Supply shifts left as regulation increases firms costs of production. Demand could also shift left because regulation aims to reduce the amount consumed. Price rises from P to P1. Quantity falls from Q to Q1. This represents a fall in consumption/production.

L3 - Solves over production and over consumption. Moves market closer to socially optimum level - more allocative efficient. Increases welfare. I guess before the S and D diagram I could have used a negative externality diagram and explained that, not sure if it is required though.

L4 - Regulation is expensive and difficult to enforce (opportunity cost).
May not be set at optimum level -government failure

L4 - Alternative methods such as the provision of information. Reduce information failure moves market closer to socially optimum level so also removes market failure. Could use indirect taxes to increase cost of production..

Conclusion - Regulation is the most effective solution because.. it increases cost of production and moves market closer to socially optimum level. Again not too sure on the conclusion.

If someone could give me some advice on these templates it would be appreciated :smile:
(edited 8 years ago)
Original post by Super199
Regulation next - I am going to say in the context of de-merit goods (market failure).

L1 - Definition of regulation and de-merit goods. Say de-merit goods lead to negative externalities this is where the social costs > private costs.

L2 - Examples of de-merit goods (cigarettes) and what sort of regulation could be used. Over 18 to smoke. How it leads to market failure. Overconsumed and overproduced possibly due to information failure. Health warning on packages.

L3 - Diagram of supply and demand. Supply shifts left as regulation increases firms costs of production. Demand could also shift left because regulation aims to reduce the amount consumed. Price rises from P to P1. Quantity falls from Q to Q1. This represents a fall in consumption/production.

L3 - Solves over production and over consumption. Moves market closer to socially optimum level - more allocative efficient. Increases welfare. I guess before the S and D diagram I could have used a negative externality diagram and explained that, not sure if it is required though.

L4 - Regulation is expensive and difficult to enforce (opportunity cost).
May not be set at optimum level -government failure

L4 - Alternative methods such as the provision of information. Reduce information failure moves market closer to socially optimum level so also removes market failure. Could use indirect taxes to increase cost of production..

Conclusion - Regulation is the most effective solution because.. it increases cost of production and moves market closer to socially optimum level. Again not too sure on the conclusion.

If someone could give me some advice on these templates it would be appreciated :smile:


On your L3 I would you use one diagram either effecting a firms ability to produce a demerit good thus decreasing supply or aimed at the consumer such as being 18 to smoke which would decrease demand.
Original post by justfly
On your L3 I would you use one diagram either effecting a firms ability to produce a demerit good thus decreasing supply or aimed at the consumer such as being 18 to smoke which would decrease demand.


Ah right so you either say firms cost of production increases so supply falls.
Or you do a diagram for demand falling. Not both together?
Original post by keynes24
I can provide some answers


On supply/demand questions, if you mention the comment marks like size, PED/PES (according to diagram) and size should you explain each one to increase your chance of securing all 4 comment marks?
http://www.ocr.org.uk/Images/59758-question-paper-unit-f581-01-markets-in-action.pdf

Can someone help me in how to structure the 18 mark question. I'm not really sure how an increase in taxation can reduce negative externalities? QUESTION 6
Reply 756
Avatar for Yousf
Yousf
13
Original post by midgemeister7
No, it means a rise in the final price of product(s), which is usually CAUSED by a rise in costs of production


What product? Theres no demerit goods in tradeable permits, only negative externalities that arise causing the pollution
Original post by Super199
Ah right so you either say firms cost of production increases so supply falls.
Or you do a diagram for demand falling. Not both together?


I've always been taught to use one diagram and explain how it works then go on how to it solves market failure, so I personally suggest using 1 diagram, but hey I'm a student so your better off asking a teacher
Original post by justfly
On supply/demand questions, if you mention the comment marks like size, PED/PES (according to diagram) and size should you explain each one to increase your chance of securing all 4 comment marks?


If the question has 4 marks for comments I would do 4 short evaluations
Indirect taxes and de-merit goods/negative externalities causing market failure.

L1 - Definition of indirect taxes , demerit goods, negative externalities and market failure.

L2 - Apply to question - global warming is a negative externality. Say what the social costs are and that they exceed the private cost. Give example of indirect tax (VAT). I have never really understood how L2 works. Is it just applications?

L3 - Supply shifts to left. Causes price to rise from P to P1. Increases producers costs which reduces overproduction and overconsumption. Maybe label the bit of the consumer burden and the producer burden.

L3 - Market is more allocatively efficiency as it solves overproduction. Increases welfare. Could have used a negative externality diagram - not sure if you get any L3 for this?

L4 - Depends on elasticity of the good. If the good is elastic more will be put on the producer? So will reduce overproduction? Deters production by raising cost of production - advantage

L4- Will not reduce output if PED is inelastic. Expensive. Alternative method if to do with global warming could be tradeable permits.

Then conclusion...

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