UNOFFICIAL MARK SCHEME OCR Economics - Markets In Action 2015

i said the market failure was the overproduction of biofuel crops is that right

Hmm... How did you explain that subsidies correct market failure then?


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I explained on the graph that price decreases reducing cost of production and increase quantity from q1-q2, but then i said here the market is failing as the goverment is oversubsidising biofuel crops not realising the negative externalities arising out of it eg the landscape soil fertiity etc

Hmm... That's tricky to be honest -not sure I can answer it.

You based your question on the case, but added some hypothesis into it (ie the subsidies for biofuel).

In order to access L3 Band 2, you need to explain how it solves market failure (ie allocative efficiency and the stuff we've discussed). By saying that there's government failure, allocative efficiency hasn't been achieved, and that may void any evaluative points you made.

Don't take my word for it though - we'll know for sure in a couple months!

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Dam, i did say they would meet the demand for the energy and elaborated on that ;l

If you explained that a subsidy could correct the market failure for something (ie clearly!), then they may take everything into account.

Honestly, don't worry now. It's done and made. Focus on your other exams!

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In the essay, I used the example of a subsidy correcting the market failure associated with the shortage of houses (basically from a previous case study and essay question). Would this have been okay?

For the 18 mark question, I didn't explain any alternatives as the question asked will subsidies always correct market failure. I don't see how explaining and evaluating an alternate will really answer the question thus I didnt explain any alternatives. All I did was 2 analysis points of why subsidies may correct failure and 2 evaluation points for why it's not with conclusions and diagrams

Can anyone tell me the reason of market failure for the last 18 marker question?

It was too general question and i am still not sure wether the market failure is due to the existence of positive externality (biofuel crops) or due to other factors.

Thank you in advance

Yes, I did exactly the same - I looked at it and thought there was no need to discuss alternative methods, as it just mentioned subsidies and didn't hint to anything else i.e. 'is it the MOST effective method'.

It was not a compulsory approach to argue against subsidies but it could have been a valid approach because you could have come up with a more effective alternative.

For example, I didn't do a full on change in an alternative but I did mention for the opportunity cost that a reduction in indirect taxes could be just as effective if not more so because it doesn't require as much of an opportunity cost and it is more likely to be effective in the long term,

The only way a subsidy would be used by the government would be to increase the supply of the good, reducing its price and increasing quantity demanded.

Therefore, while the case study was rather negative of the allocation of resources of biofuels it wanted you to say that it was a merit good, because it reduces pollution of car emissions.

Also it did not refer to a particular market you did not have to use biofuels within the case study. I referred to both public transport and biofuels and how these are merit goods/provide positive externalities e.g. less pollution/air pollution, less congestion for roads and less consumption of cars because there would have been a model switch.

Could you have also said it prevents farmers from going out of business preventing economic problems?

hi in the 18 marker i said how subidies prevent under consumption of demerit goods by making them cheaper giving the consumers more incentive to consume more fixing market failure and hence reaching allocate efficiency as underconsumption is no longer occuring.... BUT will i be capped for simply not saying "subsidies will decrease production costs" Thanks

That's L2/L3, so it's unlikely you'll be capped since you've already covered quite a bit of analysis.

PS: You meant to say the underconsumption of merit goods*, not demerit.

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