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

Original post by MA119

Guys, the specification says :colone:

xplain why the existance of public goods leads to market failure.

Any ideas?!?! :eek:

Public goods are non-excludable and non-rival in nature.

Non-excludable means you cannot prevent anyone from consuming it (i.e. a price, age limit, height requirement etc.)

Non-Rival means one person's consumption will not affect anothers consumption (i.e. I cannot play on Time Crisis 2 if there are already two players on it, congestion on roads)

The market failure is that the market will not provide public goods as there is no incentive to do so (cannot make profit so why bother), therefore these essential goods will be underprovided. You also have the free rider problem, why would I pay for these goods if I know that I can wait, someone else can provide it and I don't have to pay? Therefore to solve this issue you tend to have to have the Government step in and provide them themselves or subsidise firms. (e.g. streetlights, lighthouses, education)

When doing an essay on this remember that 'true' public goods are almost non existant, most public goods are quasi-public in nature. Excludable but non-rival or Non-excludable and rival. Public goods can also be public or quasi-public depending on the level of consumption, e.g. a road is a public good until too many people consume it, then traffic forms and it is quasi-public.

Reply 101

jennymartin555

How do you know where to draw the welfare loss triangles in positive/ negative externality diagrams? Many thanks.

Reply 102

itsn0b0dy

Original post by jennymartin555

How do you know where to draw the welfare loss triangles in positive/ negative externality diagrams? Many thanks.

isn't welfare loss just change in consumer surplus?

Reply 103

Original post by jennymartin555

How do you know where to draw the welfare loss triangles in positive/ negative externality diagrams? Many thanks.

An easy way to tell: positive externality triangles point to the right. Negative points to the left.

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Reply 104

Original post by itsn0b0dy

isn't welfare loss just change in consumer surplus?

It also includes a change in producer surplus I think

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Reply 105

Original post by Knowing

An easy way to tell: positive externality triangles point to the right. Negative points to the left.

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What is this welfare loss?

Reply 106

Original post by Jasonpt

I think what a lot of people dont understand about the 18 markers is that there is no right or wrong answer as long you answer the question you will be fine, providing its not complete nonsense.

While you are correct about there being no right or wrong answer, you can agree or disagree with the question, there are a couple of points to clarify.

1. Your judgement needs to be clear and strong, make schemes explicitly want you to agree or disagree with the assertion in the question. Do not sit on the fence, pick the side of the argument that you believe is the strongest and justify why underneath. If you genuinely don't know, pick one you feel you could argue. The 18 markers are not designed for you to explain your true position on the matter, but rather your economic ability in putting forward a reasoned argument.

2. There is a 'right' or 'optimal' structure to 18 mark essays. One of the biggest problems I have marking F581 scripts (I'm doing it this summer as well) is poor layout and just 'mind-dumping' information without justification and thought. Some people really struggle to make it easy for the examiner.

Kind Regards,

Mr. E

Reply 107

itsn0b0dy

Original post by EdwardsEconomics

This is a common error in many students responses. If you are stating an alternative you should not include any L1-L3, i.e. no diagrams, how it works etc. The best way to handle it is to directly compare the two methods in one paragraph.

i.e. If I was comparing regulation and information provision I would say something like this:

"An alternative to information provision is regulation; unlike information provision, regulation can force people to change their behaviour and therefore can be seen to be more effective. However the problem is that regulation does not change the underlying desire to consume the demerit goods and instead can create black markets and a loss of welfare for those who still wish to consume but are prevented from doing so."

Here we see that there is a clear comparison.

What NOT to do is the following:

"Regulation is an alternative policy, banning the demerit good would theoretically reduce the quantity consumed to zero and solve the market failure of over-consumption. Regulation is also quick, effective and clear to the general public. However it has problems with enforcement costs.... [and so on]"

Here the pupil has just started doing L4 on a topic that was not in the question title. He is no longer comparing an alternative against his main focus, but changing his focus.

Hope this helps,

Mr. E

I've actually received contradictory information from my economics teacher so this is beginning to stress me out :frown:

I've actually been told to analyse the 2nd policy you bring in, and then go onto compare it as well.

What have everyone else's teachers said?

Reply 108

Original post by lionelmessi19

What is this welfare loss?

Yeah, the welfare loss triangles

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Reply 109

Original post by Knowing

Yeah, the welfare loss triangles

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I have never heard of these welfare loss triangles..
I have seen consumer and producer surplus, but my teacher has never made any reference to welfare loss..
Can you explain what this is?

Reply 110

Original post by itsn0b0dy

I've actually received contradictory information from my economics teacher so this is beginning to stress me out :frown:

I've actually been told to analyse the 2nd policy you bring in, and then go onto compare it as well.

What have everyone else's teachers said?

We were told to state the adv/disadvantages of the alternatives mentioned - and make a judgement as to which is more effective or whether you can use it in conjunction with another solution

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Reply 111

Original post by lionelmessi19

I have never heard of these welfare loss triangles..
I have seen consumer and producer surplus, but my teacher has never made any reference to welfare loss..
Can you explain what this is?

I am about to go into my music exam, so I'll draw it later if no one else has.

Basically the welfare loss triangle shows the loss in consumer+producer surplus. I don't think it's in the specification though

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Reply 112

Original post by jennymartin555

How do you know where to draw the welfare loss triangles in positive/ negative externality diagrams? Many thanks.

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).

Reply 113

Original post by Knowing

I am about to go into my music exam, so I'll draw it later if no one else has.

Basically the welfare loss triangle shows the loss in consumer+producer surplus. I don't think it's in the specification though

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Oh right.. thanks!! Good luck for your exam!

Reply 114

Original post by itsn0b0dy

I've actually received contradictory information from my economics teacher so this is beginning to stress me out :frown:

I've actually been told to analyse the 2nd policy you bring in, and then go onto compare it as well.

What have everyone else's teachers said?

Feel free to believe your own teacher, I do go to OCR examiners meetings, mark F581 papers as well as teach this subject however. Look at the mark schemes available on the OCR website and see what they say, you'll find that the L1-L3 way of marking is very clear.

Without meaning to be disrespectful to your teacher, they are not correct in this case and will instead be making you write far more than you mean to and not really answer the question effectively.

You will not lose marks doing it your teacher's way and among all the extra you write will pick up marks. But you will be productively inefficient.

Regards,

Mr. E

Reply 115

Original post by lionelmessi19

I have never heard of these welfare loss triangles..
I have seen consumer and producer surplus, but my teacher has never made any reference to welfare loss..
Can you explain what this is?

Welfare loss triangles will appear on negative and positive externality diagrams at AS OCR economics, again, these diagrams are optional and you will never NEED to draw them, though they can be of use obviously. You do not need to know about welfare loss (or sometimes called deadweight loss) on consumer and producer surplus diagrams.

Regards,

Mr. E

Reply 116