1. Re-cap test
Define the following terms, using examples to aid your answer
External Cost/Benefit (2)
Private Cost/Benefit (2)
Social Cost/Benefit (2)
How is the true social cost benefit calculated? (2)
Why are are externalities a problem for our economy? (2)

2. Lesson Objectives
All students will understand the importance of market failure and externalities
Most students will be able to assess the implications of market failure
Few students will understand the importance of market failure on the economy

3. Policies to deal with Market Failure in society
Things to consider
Public Goods
Merit Goods
Demerit goods
Externalities
Factor immobility
Imperfect information
Economic consequences of environmental change

4. How are issues addressed?
Public Goods??
Merit Goods??
Are there problems associated with this?

5. Public and Merit Goods
The issues around these mean that the government has to provide them. But of course this brings about problems:
Inefficiency associated with lack of competition
Huge costs involved and tax burden
Potential trade-offs associated with public funding
PFI’s – Private Finance Initiatives – partnerships between the public and private sectors on investments such as schools and hospitals
Example pg 58

6. Demerit Goods: The Market Failure
Demerit goods will be over-produced in a free market because the external costs is not internalised.
So lets consider the possible solutions alongside that of externalities.

7. Externalities: The Market Failure
When externalities are present, the free market will produce the wrong quantity.
A negative externality will mean that too much of a product is produced – so what are the possible solutions?
A positive externality will mean that not enough of a product is produced - so what are the possible solutions?

8. Externalities: The Market Failure
A negative externality will mean that too much of a product is produced
Market based system – taxes/Tradable permits (pg 60)
Education
Regulation
A positive externality will mean that not enough of a product is produced
Marketing campaigns (pg60)
Subsidies

9. Marginal Costs and benefits
How can the shift be achieved?

10. Impact of the tax

11. Immobility of labour –what can be done here?
Geographical mobility
Occupational mobility is the ability to change type of jobs.

12. Immobility of labour Geographical mobility
Subsidies and grants to help relocation
Occupational mobility is the ability to change type of jobs.
Training programmes
Minimum wage

13. Imperfect of asymmetric information
Imperfect (lack of information) or asymmetric (buyer or seller knowing more than the other) information can also lead to market failure.
Internet is dealing with this – huge exchange of information
Comparison sites
Customer review sites
Social media

14. Look at exam style Qd pg62
create a plan for this answer in your note book