Economics help?

[anonymous7]

a) Describe the concept of market failure and explain the reasons for its occurrence.

b) Discuss conflicts of interest in relation to private and social costs and benefits in the short term and long term through studies of the following issues:
- conserving resources versus using resources
- public expenditure versus private expenditure

c) Describe likely changes in the earnings over time for an individual.

d) Analyse different motives for spending, saving and borrowing.

e) Discuss how and why different income groups have different expenditure patterns.

f) Discuss possible conflicts between government aims.

g) Discuss policies to alleviate poverty

h) Describe the benefits and disadvantages of specialisation at regional and national levels. (In comparison to benefits and disadvantages for the individual?)

Help? It would be much appreciated.

 

[J.Darren]

a) Describe the concept of market failure and explain the reasons for its occurrence.

b) Discuss conflicts of interest in relation to private and social costs and benefits in the short term and long term through studies of the following issues:
- conserving resources versus using resources
- public expenditure versus private expenditure

c) Describe likely changes in the earnings over time for an individual.

d) Analyse different motives for spending, saving and borrowing.

e) Discuss how and why different income groups have different expenditure patterns.

f) Discuss possible conflicts between government aims.

g) Discuss policies to alleviate poverty

h) Describe the benefits and disadvantages of specialisation at regional and national levels. (In comparison to benefits and disadvantages for the individual?)

Help? It would be much appreciated.

 

a) Social cost (cost that society has to bear, e.g. pollution) > Private cost (cost of production, e.g. wage and rent)

c) 20 - 25 : Wage at entry point of salary scale.

25 - 40 : After building up experience, business connection and skills, the worker may get promoted and the wage would increase.

40 - 55 : Remains at the same level as the worker has reached the highest position in a corporation. Glass ceiling (Racism / Sexism). Compulsoary maternity leave for female workers.

55 + : Wage decreases as the worker retires, living on pension and savings.

d) Spending - to satisfy wants.

Saving :

- For future consumption
- Interest rates
- Avaliblity of saving schemes
- Consumer confidence

Borrowing :

- To increase expenditure
- Wealth
- Availblity of credit
- Consumer confidence
- Interest rates

e) Low income - Mostly spent on necessities. Would aim to satisfy a few wants every now and then. Likely to spend on inferior goods.

High income - Proportion spent on luxury items is greater than necessities. Inferior goods in the same category likely to be replaced by normal goods.

f) The five marcoeconomic objectives are :

- Redistribution of income
- Trade balance
- Economic growth
- Price stability
- Full employment

g) MEDC - Increase government spending on infrasturectures, increase social welfare (e.g. unemployment benefits), increase progressive tax.

LEDC - increase export, increase foreign direct investment, foreign aid.

h) Indivudal : Incrase in skills, productivty and wages. Interdependence. Boredom due to repetition. Does not success of completing job as specalisation means dividing a job into many specialist tasks.

Regional : Increase in profuctivity of a country (incl. workers and industries). GDP and living standards (HDI) will rise.

National : Can import goods from other countries at a lower price (e.g. France enjoys a relative advantage in the production of red wines).

[J.Darren]

b) merit goods and public goods will be under-supplied by private producers as they are not profitable and in some cases, people cannot be charged for the consumption of those goods (street lights). in those cases the government can either subsidise private producers in the production of those goods. in cases where a particular goods produces a large positive externalities (public transportation), the government will nationalise it as a whole.

[anonymous7]

Ahhh thank you so much. (:

Could you expand on market failure though? I don't really see the link with social costs.

[J.Darren]

Ahhh thank you so much. (:

Could you expand on market failure though? I don't really see the link with social costs.

I do apologise. Social cost = Private cost + External cost. Whenever external costs exist, the market system will not make the best use of scarce resources. This is because private firms are only interested in producing with the cheapest and most productive method, this could mean polluting the environment. Private firms aim to achieve profit maximisation, for instance cigaratte producers will incur social costs such as second-hand smoke, making excise duty necessary in curbing those impacts.

[someone]

isnt market failure is due to social cost > social benefits?

[J.Darren]

isnt market failure is due to social cost > social benefits?

Yes. But since Private cost + External costs = Social cost, if something is said to have an external cost, then it automatically has a negative externality (i.e. market failure).

[someone]

Yes. But since Private cost + External costs = Social cost, if something is said to have an external cost, then it automatically has a negative externality (i.e. market failure).

but if the social benefits (private + external benefits) is still bigger than the social cost(which may also have external cost), the project is still NOT a market failure

[J.Darren]

but if the social benefits (private + external benefits) is still bigger than the social cost(which may also have external cost), the project is still NOT a market failure

It is a matter of proportionality I guess, virtually every act of the private producers is deemed to incur externalities, for it be positive or negative. In the IGCSE syllabus they will be giving some blatant examples and expect you to be able to identify whether a certain "project" shall be classified as a market failure that must be regulated and sanctioned by taxation, or whether it is worthwhile for the government to support it by means of subsidising it or nationalise it as a whole.