2.  Explain the market failure  Explain the government intervention to correct the market failure in terms of efficiency or equity  Use economic models to illustrate each market failure and the government interventions to correct it.

3.  Governments may intervene in the market if Market Failure occurs  Market failure occurs when the market does not result in efficient or equitable outcomes  Efficient outcomes are where SMB = SMC  For all types of externalities this does not occur

4.  Equity occurs if a situation or outcome is considered to be fair.  Fairness is a matter of opinion often based on peoples values e.g. some person/group will think its fair to tax high income earners more than low income earners while other people/groups may consider this unfair.

5.  To internalise an externality is to ensure that private costs (or benefits) equal social costs or benefits  This may involve govt intervention

6. Method Effect/ what it is Best for: Subsidy Sales Tax Income Tax Regulations Transfer Payments Public Ownership/ Provision Lowers the cost of production Lowering the price to encourage the production and use of certain products. More resources are allocated to a good/service than would be provided by the free market. Increases the cost of production Raises the price to discourage the production and use of certain products. Pay for some of the costs imposed on society as a result of the product being consumed Reduces IncomesReduces demand. Progressive taxation narrows the gap between rich and poor and reduces inequality of income More direct effect than taxes or subsidies Limit or prohibit the production or consumption of certain products. Enforce the production or consumption of certain products Redistribution of incomes from “rich to poor” Addressing income inequality in form of social welfare benefits and income support. Situations where its not socially desirable for provision to be in private ownership. Providing G&S not sufficiently provided by the free market Army, Police Libraries, parks, Rubbish collection, Education

7. Equity -Refers to people having fair amounts or shares of something or fair access to something, including opportunities and resources. -May mean that people are treated differently and get unequal shares to be fair.