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

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    hiya PinkElephant16, I thought merit goods were OVER-priced but the free market naturally UNDER-consumes them as the consumers are not aware of the positive externality...
    not 100% sure though, anyone feel free to correct me
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    (Original post by PinkElephant16)
    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?
    The idea isnt really in their price, because merit goods are underconsumed (due to a lack of information failure on its positive social benefits for example) suppliers are not willing to supply as much because they know they will not gain a huge amount of profits because not many will buy them..so governments subsidise them because if they did not underconsumption would still be apparent! Subsiding is them attempting to make the costs of production for suppliers cheaper so they supply more of the merit good, but in order for consumers to be more inclined to purchase them a policy like provision of information would help fix the market failure

    hope that helped....!
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    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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    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?
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    If you combine the L3 and L4 points together will you gain the same number of marks?
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    What do you guys think the 18 marker will be?
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    (Original post by clara16)
    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?
    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)
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    (Original post by chelseafan)
    What do you guys think the 18 marker will be?

    Possibly a question on Subsidies / Indirect Tax / Pollution permits - regulation came up on the May 13.
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    Any last minute revision tips? I've done all the past papers.
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    (Original post by EdwardsEconomics)
    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....
    Is there any common errors that students make in the exams so I know what to stay clear of tomorrow
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    (Original post by BleedBlue95)
    Possibly a question on Subsidies / Indirect Tax / Pollution permits - regulation came up on the May 13.
    I think it will most probably be about tradeable permits since that has never came up before
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    (Original post by EdwardsEconomics)
    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).
    How many diagrams are needed to obtain maximum marks? 2????
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    (Original post by maisiemorris)
    Is there any common errors that students make in the exams so I know what to stay clear of tomorrow
    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.
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    (Original post by studentwiz)
    How many diagrams are needed to obtain maximum marks? 2????
    You do not need to do any diagrams to get all 18 marks, but you will make life very hard for yourself. It is not recommended.

    One diagram showing the effect of the subsidy/tax/regulation/pollution permit reduction/information provision is very desirable and I would say essential to ensuring you make it as easy for the examiner to give you full marks.

    Two diagrams are never needed, the only time pupils do this tends to be either to show off, confusion or because the do a positive/negative externalities diagram and then want to show the effect of a subsidy/tax/regulation/pollution permit reduction/information provision. Only one of the diagrams will really count towards your L3 band 1.

    Remember it is not quantity, but quality and adhering to the prescribed L1-L4 structure.

    Regards,

    Mr. E
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    (Original post by May-o2q)
    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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    This makes an assumption that there is a tax on these merit goods in the first place and for the reason I would say no. The alternative to subsidies is information provision (i.e. advertising/labels that explain how great something is - changing taste and fashion) or regulation (forcing people by law to consume it e.g. education until a certain age). Information provision would be the easier option to do in an essay in this case.

    One past 18 mark question was about the case for reducing taxes on fuel; the diagram was a shift to the right of the S curve. Remember for this one that it is not necessarily bad, the benefits are increased productive efficiency for firms leading to a rise in international competitiveness as well as an increase in consumer satisfaction / welfare (allocative efficiency). After that the criticism of the enviromental concerns and loss of tax revenue should be mentioned as L4.
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    (Original post by EdwardsEconomics)
    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.
    Thank you, that has helped a lot!!
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    Mr e is my hero !!!!!!!!!!!!!!!!!!!!
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    (Original post by ks100)
    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.
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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)
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    (Original post by BleedBlue95)
    If this is the case then the question will be based upon negative ext and demerit goods.
    You just reminded me of another classic thing to point out, apologies if you already know but I'm firing off tidbits for everyone panicking on this forum.

    Demerit goods don't necessarily produce negative externalities.

    Merit goods don't necessarily produce positive externalities.

    Neither should feature in each other's definition. A recap: merit and demerit goods exist when there is unrealised benefits or harms to the private individual. 3rd parties are not relevant at all. If people have perfect information then the good will be be a merit or a demerit good and there is nothing unrealised. Whether this happens in real life could be used in L4 debate / judgement.

    Case in point: heating for old people is considered a merit good (they under-consume it) and as such is the reason why we have the winter fuel allowance. However this fuel consumption produces negative externalities of CO2 emissions (as well as every other neg ex. from fossil fuel consumption).

    Externalities are only concerned with costs / benefits on 3rd parties that are not internalised by the market mechanism.
 
 
 
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