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

Are merit goods Under-priced or Over-priced??

My teacher taught us that they're under-priced which is why there's less incentive to supply merit goods.

But why does the government subsidise Merit goods if they're underpriced?

I've never heard of MSC MPC & MEC... in a demerit diagram can I just label them s & s1 if I explain why supply will shift left?

What do you guys think the 18 marker will be?

Just like to point out that the above is a barebones skeleton, you will need a decent structure and an ability to elaborate and answer the question that is set directly. But as quick last minute panic revision, it should help a few people out.

Feel free to email me if you have any other queries, I also mark exams for OCR so I know a few things here or there! But seeing as so many of you have this increasingly incredible Oxbridge factory workers, I'm sure you will all sail through....

This point is very important:

At no point do you have to draw a positive or negative externalities diagram in F581. Of course they are helpful in the 18 mark essays if the question specifically asks about them. They are optional.

For example: "Discuss the extent to which taxation solves the market failure arising from negative externalities"

L1: define tax/negative externalities and market failure

L2: give an example of a tax on a relevant good / service which creates a negative externality. Explain how it affects third parties. Idea here is to apply real world examples to the theory.

L3: Draw a simple D&S diagram showing the effect of a tax on supply. Explain in words, then tell me how it solves the MF (increases welfare / reduces the market failure by solving the overconsumption of goods which produce negative externalites / increases allocative efficiency etc.)

Then L4 plus judgement.


In answering your actual question: the welfare loss triangle will always be between 3 points. The new and old equilibrium, and the third is the point directly above the original equilibrium on either the MSB or MSC curve. A previous poster was correct in saying if you imagine it as an arrow, positive externality diagrams point to the right, while negative externality diagrams point left (to zero).

Is there any common errors that students make in the exams so I know what to stay clear of tomorrow

How many diagrams are needed to obtain maximum marks? 2????

Can I say reduced indirect tax as an alternative method of subsidise merit goods? If so, how to draw and explain the reduced indirect tax graph? :/



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A couple of *facepalm* errors are as follows:

1. Not labeling the D or S curve on consumer/producer surplus diagrams. This renders all the marks (normally 4) void, even if everything else makes sense.

2. Using AD/AS anywhere in the paper.

3. In PED/XED/YED/PES definitions pupils write "the responsiveness of a change in demand/supply to a change in *price/income/price of good A*.

The highlighted red word should not be included, some pupils continue to put "change" in twice.

4. Not putting comments (for examples see one of my earlier posts) in comment questions, just analysing. Discussion questions should be balanced in positives and negatives.

5. When describing factors of production and giving examples pupils regularly get Land and Enterprise examples wrong. When giving an example of land it is the SITE of whatever is being discussed (or you can go for beaches/mountains/oil). Use the word site though, shortcut to success. Note: fuel is not land, it has been processed by man and is capital. For Enterprise/Entrepreneurship the example should be the risk taking of the managers. The managers themselves are not examples, they are labour.

6. Shifting Demand for any reason if there is a tax.

7. Not understanding what positive and negative values mean for XED/YED

8. saying ceteris paribus does not hold for a comment question and failing to give an example of what else could affect the situation.

9. If a question says "using the figures in part b" or something similar, you NEED to do just that. You can't just write the correct theory and expect to get full marks, application is needed when instructed to do so.

10. Positive and negative externalities are not the same as external costs and benefits. There is no market failure (negative externality) if there is an external cost to a third party which is fully paid for by the 'polluter'. I.e. Supposing I charge the perfect tax on carbon pollution so that it covers the full external cost, it does not eliminate the fact that it does affect a third party, just now they are completely compensated.

That's without even talking about the fun ways to get the 18 mark essay wrong. I'm sure there's more but I'm off for a cuppa for a few minutes.

I think it will most probably be about tradeable permits since that has never came up before

If this is the case then the question will be based upon negative ext and demerit goods.