According to economic theory, the price mechanism in a free market will always allocate scarce resources efficiently for all goods and services. Evaluate the validity of this statement. [25]

This essay question was adapted from an actual H2 A level economics examination question

This economics essay evaluates whether the price mechanism in a market economy will always allocate scarce resources efficiently for all goods and services. This essay argues that, on the one hand, the price mechanism working in a free market economy will indeed allocate scarce resources efficiently, according to standard economic theory, because of the price mechanism can achieve productive and allocative efficiency. On the other hand, the allocation of scarce resources may not always be efficient, especially when there are market failures and resources are not allocated efficiently, leading to a situation of allocative inefficiency, which distort the workings of the free market.

First, we need to deal with the central problem of economics. Human wants are unlimited, while the earth's factors of production of land, labour, capital, and entrepreneurship are limited. Land refers to gifts of nature such as physical land, natural resources, and oil and gas, among other examples. Labour refers to human ingenuity, effort, time, and talent in the form of “human capital”. Capital in economics often refers to goods that are used to produce yet other goods. And entrepreneurship is the risk-taking, decision-making element that coordinates the other factors of production in an economy. This situation of limited factors of production that could potentially be allocated to different outputs, and the context of unlimited human wants, results in a situation of scarcity. It is important to note that economic scarcity necessitates choice, usually made between competing uses. 

Tutor’s Question: What economics diagram do you think should be drawn here? And how would this diagram back up your arguments?

The price mechanism, through the intersection of demand and supply, determines the optimal price and output and it is from the rational choices of millions of suppliers, producers, and firms meeting the requirements of millions of consumers, individuals, and households that eventually leads to the free market determining what to produce, how to produce, and for whom to produce. Demand is defined as the willingness and ability to purchase a good or service, ceteris paribus, while supply is defined as the willingness and ability to produce a good or service, also ceteris paribus. Oftentimes, one major assumption for this economic theory to work is the situation of perfect competition, where there are many buyers and sellers in a market, selling a homogeneous and non-differentiated good or service, and there are no (or very low) barriers to entry into the market.

Under the market price, consumers seek to maximise utility, and will therefore only consume if they are able to have a positive net benefit from the consumption of these goods and services. Those who are willing and able to pay will obtain the good and service. And the resources used to produce these goods and services will also be efficiently allocated, as producers maximise their profits. As a result, there is productive efficiency, since goods will be produced at the lowest cost combination to ensure profits are maximised, and price will be equal to marginal cost. On the whole, there is also allocative efficiency, since society’s welfare is maximised, and the Pareto efficient situation is reached, where we can only make some people better off by making others worse off in such an economic situation.

On the other hand, there are market failures in the real world, which may impede the efficient allocation of scarce resources. Market failure is the situation where the free market fails to allocate resources efficiently, and there is allocative inefficiency and deadweight loss to society. There are many types of market failure, such as the lack of provision of non-rival and non-excludable public goods, under-consumption of merit goods but over-consumption of demerit goods, externalities both positive and negative and also in consumption and production, imperfect competition leading to excessive market power in a market, imperfect information, factor immobility, and income and wealth inequality in a free market.

One major example is the under-consumption of merit goods. Because rational consumers seek to maximise their own welfare, they do not account for the positive externalities associated with the consumption of their good or service, which could be a merit good. There are many definitions of a merit good, but one definition is that a merit good is a good defined by society or the government to be beneficial to society, often because they bestow positive externalities on society when they are consumed. Externalities are defined as spillover effects to third parties not involved in the production or consumption of the good. Vaccinations provided by the National Health Service (NHS) are examples of merit goods, because they confer positive externalities on society, as when people who are vaccinated help by not infecting others and by making UK society healthier as a whole. However, an individual consumer only considers his marginal private benefit from getting vaccinated, and does not consider the positive externalities his vaccination confers on society – he would not take the positive externalities into account when making his economic decision. This decision results in an under-consumption of the merit good of vaccination, if the decision is left to the workings of the free market, and there is therefore dead-weight loss, as society’s welfare has yet to be maximised due to this under-consumption.

Tutor’s Question: What economics diagram do you think should be drawn here to support the merit good argument, which shows that markets do not always work efficiently?

Another example is the failure of the free market to produce public goods if there is no government intervention. A public good is one that is non-rival and non-excludable. Non-rival in consumption means that one person’s consumption of the good will not result in less of the good being available to others – or the consumption of the good does nothing to reduce the quality or quantity of the good for others, such as public lighting in the streets, where the amount of light cannot be “used up”. As a result, the marginal cost of the next user is theoretically zero, and if allocative efficiency means to produce where price equals to the marginal cost, and the marginal cost of producing the good is zero, then it follows that no private firm would produce the good only to  charge zero dollars (at the allocative efficiency level). And non-excludable means that non-payers cannot be excluded from consuming the good, for example national defence – it defends everyone in the country, including those who have not paid for it, such as foreigners or travellers, such as tourists. Therefore a rational firm would not produce this good because of the problem of free riders, where one who has not paid for the good has the ability to consume it. The government is the only decision-making body that has the willingness and ability to produce a public good, like street lighting and defence, as it has the mandate to do so for the welfare of its citizens (and therefore the willingness) and can raise the revenues to do so from compulsory taxes (and therefore the ability to do so).

In conclusion, while the price mechanism allocates scarce resources efficiently according to economic theory, this may not always be the case in reality, as there are market failures that challenge the assumptions upon which the efficiency of the price mechanism is predicated. Some government intervention is required in the free market to make it genuinely “free”, and to let the price mechanism work as it should. In the real world, with market failures such as the failure of the free market to produce public goods or the underconsumption of merit goods, or imperfect competition in the market, there is a strong need for government intervention in the free market to reduce or eliminate market failures so that the free market can go a long way to produce the optimal outcomes that the free market economists promise.

Economics Tutor's Comment - This is a top-quality, excellently-argued, and very strong economics essay which covers quite a few important points and arguments. The candidate's use of economic theory for market failure is quite strong in this economics essay and the anti-thesis arguments have been well-explained. Could more real-life examples have been used to demonstrate the arguments or the strength of the points? What else would make this economics essay even better than it is currently? Thank you for reading, and cheers! 

JC Economics Essays - This economics essays blog helps economics students with the A-Levels Economics examinations (Cambridge, A1/S, A2, H1/H2 A levels), and the international AS level economics examinations. IB students can also benefit from the economics materials and content in JC Economics Essays. This economics blog provides a range of useful and relevant economics essays, learning materials, study tips and techniques, and model economics essays that students in the United Kingdom, Malaysia, and Singapore, as well as worldwide, can use to excel in their studies and economics examinations.

This model economics essay was contributed by WT, our resident expert who helps students understand the beauty of Economics. She has wide-ranging academic interests in Econometrics, Economic History, International Trade, and Game Theory. And as always, SS, the editor of JC Economics Essays, edited this economics essay and also provided comments and pointers. Several editions and versions of this economics essay have been very popular, but do not accept them at face value and always think about how you would approach this economics question instead. Thank you for reading and cheers. 

Explain the cause of the market failure in the United Kingdom (UK) car industry, with relevant examples.

This economics essay explains that the two main sources of market failure in the British car industry are imperfect competition, especially arising from market power, which leads to productive and allocative inefficiency.

While there are many sources of market failure, such as the failure of the free market to provide public goods, the under-provision of merit goods, while demerit goods are over-consumed if their production and consumption are left to the workings of the free market, one possible cause of the market failure of imperfect competition due to excessive market power in the British car industry. 

The British car market can be characterised as an oligopolistic market. Broadly speaking, the car industry in the UK is known for producing cars such as Aston Martin, Bentley, Daimler, Jaguar, Land Rover, Lotus, McLaren, Mini, and Rolls-Royce, and also popular Japanese cars such as Honda, Nissan, and Toyota. As this market is oligopolistic, there are relatively few sellers, often of large size as can be seen in the examples, a differentiated product, and relatively high barriers to entry, such as patents, technology, and legal barriers. (For the purpose of simplicity in this essay, let us assume that these oligopolies do not collude or form cartels.) Barriers to entry are defined as be man-made or natural obstacles to free market competition, and this is one area where the British car industry suffers. For example, the UK has a strong design and technical base which means that its cars are likely to be highly differentiated products with no close substitutes, which confers a certain degree of market power. 

Question: What economics diagram do you think should be drawn here? How would you explain the diagram to support your arguments?

The net result of this market power is that, according to economic theory, the price of the cars produced will be larger than the marginal cost it takes to produce the car. When P>MC, it means that the industry is allocatively inefficient. Allocative inefficiency is defined as the situation where society’s resources are not being maximised. Large oligopolies, such as Aston Martin, Bentley, Daimler, Jaguar, Land Rover, Lotus, McLaren, Mini, and Rolls-Royce, tend to be allocatively inefficient, and therefore tend to be productively inefficient as well. Productive inefficiency occurs when the price of the product is higher than the average cost required to produce the product, because if the car industry were efficient, P = MC = AC, in a perfectly competitive situation. 

In conclusion, the car industry in the United Kingdom suffers from imperfect competition, with market power resulting in productive and allocative inefficiency.

Economics Tutor's Comment - This is a commendable effort for the A levels, but think of how the examples could be more explicit and targeted towards answering the question. How would make this essay even better? Thank you for reading and cheers. 

JC Economics Essays - This is an economics essays site that can help economics students with their A-Levels economics (A1/S, A2, H1, and H2 levels) as well as the international AS level economics examinations. This economics blog provides a range of useful and relevant content, materials, and essays that students in the United Kingdom, and all around the world, can use to excel in their economics. 

This Economics post with comments was contributed by WT, an Economics expert who helps students understand the beauty of Economics and its applications in real life. WT has a strong interest in Econometrics, Economic History, International Trade, and Game Theory, especially with its applications to real economic situations. This economics post was edited by S. S., the editor of JC Economics Essays. 

Explain with real world examples why markets might fail in the case of public goods and where information is imperfect. [10]

This paper explains, using real world examples, the market failures caused by public goods and imperfect information. Market failure refers to the situation where the free market fails to achieve the socially optimal outcome that maximises society’s welfare, and therefore fails to allocate resources efficiently. The market is said to be allocative inefficient. There are several sources of market failure, which include positive and negative externalities; the underconsumption of merit goods but overconsumption of demerit goods; the lack of production of public goods if they are left to the free market; market dominance, such as the existence of monopolies and oligopolies; the presence of imperfect and asymmetric information; and the immobility of the factors of production. Public goods and imperfect information would be the focus of this essay.

A public good refers to a good which is non-excludable and non-rival. Some common and popular examples of public goods include national defence and street lighting. "Non-excludable" means that it is impossible or impractical to prevent a person who has not paid from consuming the good. This implies that consumers would be unwilling to pay, as they are able to enjoy the benefits without paying, thus giving rise to “free riders”, resulting in firms lacking an incentive to produce the good and therefore a missing market. 

"Non-rival" means that the consumption of the good by a person does not diminish the quantity or quality of the good available to others. "Non-rival" implies that, once the good is produced, the Marginal Cost (MC) of allowing an additional person to consume the good is zero. Therefore, if the allocative efficient level of consumption is where Price (P) = MC, and MC = 0, then P = MC = 0 suggests that the good should be optimally provided for free, necessitating government provision. 

Hence, public goods are a form of market failure and government provision is required. Governments have the willingness and ability to produce public goods due to their non-profit nature, and unlike private firms, are able to raise compulsory taxes which citizens are compelled to pay, for the production of the public good. 

On the other hand, imperfect information refers to the situation where an agent lacks all relevant information with which to make a rational decision. 

Negative externalities refer to the adverse effects imposed on third parties arising from the production or consumption of a good. A demerit good is an undesirable good which the state believes will be over-consumed and over-produced if left to the workings of the free market. In the case of negative externalities and demerit goods, some consumers may be unaware or may underestimate the harm done to themselves and to others when certain goods are consumed or produced, and thus do not take into account the costs for themselves and on larger society. In other words, due to imperfect information, some individuals may be unable to factor in the full private costs of consumption – perceived Marginal Private Cost (MPC) is less than the actual MPC. This is shown in the above diagram, where the actual MPC, which is also the Marginal Social Cost (MSC), lies above the perceived MPC. The private outcome is Qp where perceived MPC = Marginal Private Benefit (MPB), whereas the social outcome is Qs where Marginal Social Benefit (MSB) = MSC. Between Qs and Qp, because MSC > MSB, the shaded area representing the negative welfare, the deadweight loss, can be eliminated if output were reduced from Qp to Qs. Since Qp > Qs, the good is overconsumed. Cigarettes are an example of a demerit good with negative externalities in consumption. Due to a possible lack of knowledge of the adverse effects arising from the consumption of cigarettes, smokers place themselves and nearby passive smokers at risk from suffering future health problems. 

THINK: What economics diagram should be drawn here, and what should the diagram show?

Positive externalities refer to the benefits enjoyed by third parties arising from the production or consumption of a good. A merit good is a desirable good which the state believes would be under-consumed or under-produced if left to the workings of the free market. In the case of positive externalities and merit goods, some consumers may be unaware or may underestimate the benefits enjoyed by themselves and to others when certain goods are consumed or produced, and thus do not take into account the benefits for themselves and on larger society. Training of workers are an example of a merit good with positive externalities in production as it generates a positive benefit for other firms when these workers work there. However, due to imperfect information, companies may be unwilling to send their own workers for upgrading, thus leading to the good being under-produced and therefore market failure.

In conclusion, the free market may experience market failure due to other sources besides public goods and imperfect information. Hence, the government could decide to intervene to establish allocative efficiency as part of their micro-economic goals.

JC Economics Essays - This A level economics essay response was contributed by Wilson YWS, and is one of the best essays that he has written. The response is clear, simple to understand, and shows that the student understands what the economics question demands. 

However, the major issue with it is that the real world examples could be better used to bring out and illustrate the various elements of the theories. 

Looking closely at this essay, how could the real world examples be better used to show that there really is market failure? Merely stating the examples or bringing them out piece-meal would not be a very constructive approach. However, overall, this essay is still a strong piece of work on balance but one that could be even better if it were improved. 

Thank you very much for reading, and cheers. 

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JC Economics Essays - Our popular, useful, and relevant economics website is mainly about H1, H2, H3 Economics, A level Economics, & economics essays in general, and beyond A level economics essays, this economics site is even for undergraduate and masters level essays (on a variety of interrelated topics such as economics, economic history, and economic development). Thank you very much for reading, and cheers! 

Should governments always intervene in the markets to correct problems when free markets fail to allocate resources efficiently? [15]

What is market failure? Market failure is defined as the situation where the free market fails to achieve allocative efficiency – the market fails to achieve an outcome that maximizes society’s welfare. Government intervention during market failure may in certain cases be justified, but in other cases unjustified. This essay intends to discuss if government intervention in markets that fail is justified and effective, by addressing and focusing on the economic problem of externalities, demerit goods, and the lack of provision of public goods. 

Governments can utilise various methods to address externalities and demerit goods. Externalities are third party spillover effects, and can be both positive and negative, and can come from consumption or production sides. Demerit goods are goods that either cause negative externalities, or are goods that governments deem unacceptable for their citizens, for instance smoking and gambling. In the case of negative externalities and demerit goods, when goods are over-consumed as their marginal social costs exceed the marginal social benefit, the government may adapt the use of an output tax to prevent the over-consumption of the good. 

[Insert a diagram on output tax showing how this policy cures the problem]

Imposing a tax per unit that is equal to the MEC shifts the MPC to the left. The new private equilibrium now coincides with the new social equilibrium Qs where MSB = MSC. Allocative efficiency is achieved as the output has been reduced to the social optimal level and therefore government intervention is justified.

Alternatively, the government may also impose an output quota which is defined as the limit for the quantity that the industry can legally produce, therefore effectively reducing the over-consumption of the good generating either negative externalities or demerit goods.

[Insert a diagram for output quota showing how this policy cures the problem]

The original equilibrium is determined by the intersection of MSC and MSB. When the government imposes a quota, the new equilibrium price increased while output falls. Therefore, the quota effectively increases the equilibrium price and decreases the equilibrium quantity of the good.

In the case of positive externalities and merit goods, the government may choose to adopt the policy of subsidies to effectively reduce the extent of under-consumption of the good, to raise the consumption or production of a good to bring about a more socially desirable outcome.

[Insert diagram on subsidies showing how this policy cures the problem]

Giving producers a per unit subsidy that is equal to MEB lowers their production costs and shifts the MPC to the right. The initial social equilibrium of Qs where MSB = MSC now coincides with the new private equilibrium. Allocative efficiency is now achieved as output is now raised to the socially optimal level.

Alternatively, the government may also provide for the good completely free to the society, so as to reduce the extent of under-consumption of the good that brings about positive externalities or merit goods. Also, in the case of public goods, there is a missing market and usually governments have to provide the good for society. Public goods are goods that are non rival and non excludable, which means that they cannot be "used up" when someone consumes them, such that there is less of the good for others, and which means that no one can be excluded from the consumption of the good, respectively. For instance, defence and street lighting are both public goods because they are non rival and non excludable goods. These two conditions of non-rivalry and non-excludability imply that the good has MC = 0, and also that there will be free riders, and therefore profit oriented companies simply will not produce the good as they are assumed to be profit driven. 

[Insert diagram on free provision of goods showing how this policy cures the problems (plural)]

For free provision, the social outcome where output is at Qs, is when MSB = MSC. When the output is subsidized, MSC shifts to the right, where the socially optimal output of Qs is achieved. Therefore the effective price of the good is now zero and the entire cost of the good generating positive externalities or merit goods is now absolutely borne by the government.

However, although government intervention in the market may seemingly be beneficial in helping to shift prices and output to the socially desirable outcomes, they may not always be justified, as there are limitations to it as well. In the case of demerit goods and externalities, high implementation, enforcement and mentoring costs may be incurred by the government in fulfilling its role as an interventionist and thus the total administrative costs may exceed the benefits from implementing such measures, leading to an overall decline in society’s welfare. Taxing the public may also be politically unpopular and therefore hinder governments from implementing such measures by placing political interest over economic ones. 

Moreover, in the case of merit goods and positive externalities, using subsidies to resolve the problems posed may be economically costly and full provision may lead to over-production and over-consumption beyond the socially optimal level and therefore lead to allocative inefficiency as well, therefore proving that government intervention is not justifies and not effective to a large extent. 

Hence, in the final analysis, whilst government intervention in the case, where market failure arises, may be beneficial to a limited extent in helping society to maximize its welfare, in the long term, the costs of government intervention may far exceed the short term benefits enjoyed by society as seen in the limitation of using subsidies, quotas, taxes and free provision. Therefore, markets should be rid of government intervention to a maximal extent, because it is only effective in the short run and to minimal extents and therefore is unjustified as a whole.

JC Economics Essays - H1, H2 A level Economics - tutor's comments on the essay: This economics paper is clear cut, direct, and to the point, and tries its best to answer the question. There are of course a few improvements which can be made to it - try to think about what the improvements are. However, more importantly, as this is a 15 mark examination question, it is the part (b) from another part (a) question, and therefore linked to it in a particular way. Economics exam questions on market failure at H1 and H2 levels often ask for explanation in part (a) of the question, followed by deeper analysis and more evaluative comments on the same topic in the second part of the essay. This is an important thing to note - explanation will not get the highest marks here, but analysis and deeper thinking. Perhaps you could focus on the essay's well-written conclusion, which evaluates market failure and the impact of government intervention. This makes this economics essay come to a well-reasoned, nuanced, balanced, evaluative conclusion, which greatly helps the essay get higher examination marks. Thanks for reading and cheers. Special thanks to AG, who will surely be an outstanding undergraduate candidate at Nanyang Technological University, and the other students who made this essay possible: SH, JC, NT, M, and SS. Thanks for reading and cheers. 

Explain, with relevant examples, the situations when prices determined by the intersection of demand and supply do not correctly reflect the costs and benefits, and how these situations lead to market failure in the free market.

The topic addressed in this economics paper is market failure in competitive markets. Prices do not always accurately reflect the costs and benefits of the market, thus leading to market failure in the case of positive and negative externalities, merit and demerit goods. This essay aims to identify the circumstances when prices do not correctly reflect the costs and benefits of the market and explain how markets fail as a result.

Firstly, negative externalities are defined as the adverse spillover effects on third parties arising from the production or consumption of a good. Third parties refer to people who are not directly involved in the transaction of a good. An example of negative externalities would be evident in the case of production, where plants may discharge industrial waste into the environment and therefore cause health and environmental risks to nearby residents. In addition, in the case of consumption, the existence of alcoholics may pose as a threat to the peace and security of law abiding people and society at large. Therefore, negative externalities result in the marginal social costs exceeding the marginal private costs in society, causing deadweight loss.

[Insert diagram for negative externality in production]

Without government intervention, the private equilibrium occurs where MPB = MPC, but the social equilibrium occurs where MSB = MSC. Between Qs and Qp, since MSC > MSB, the triangle pointing towards Qs represents the negative welfare generated and therefore the good is over-produced in the case of negative externalities, leading to market failure. 

Positive externalities, on the other hand, refer to the benefits enjoyed by third parties from the production and consumption of the good. In the case of production, for example, receiving a complete education up till or beyond the tertiary level will not only benefit the student himself but also the society collectively as a whole due to his contribution to the society through application of his knowledge. Likewise, in the case of consumption, for example, vaccination not only reduces the risk of contracting a disease in the vaccinated person, but also reduces the risk of diseases for third parties coming into contact with him. Thus there are greater marginal social benefits than costs but the good may be under-consumed by the society.

[Insert diagram on positive externality in production]

When there is no government intervention, the private equilibrium is where MPB = MPC. The social equilibrium however is at MSB = MSC. Between Qp and Qs, as MSB > MSC, the loss in potential welfare of the society is represented by the triangle pointing towards Qs. Therefore the good is under-produced in the case of positive externalities, leading to market failure.

Furthermore, merit goods refer to goods in which the state believes will be under-consumed if left to the free market because some individuals are unable to factor in the full private benefits of consumption. For example, a student may decide to leave school early to work as he perceive the short term benefits of working to be greater than the long term benefits of receiving a complete education, therefore unknowingly undermining the marginal private benefits he has brought to himself.

[Insert diagram on merit good]

For merit good, the private outcome is Qp where MPB = MPC, whereas the social outcome is Qs where MSC = MSB. Between Qp and Qs, since MSB > MSC, there is a loss in potential welfare represented by the triangle pointing towards Qs, and the good is under-consumed, thereby leading to market failure. 

Demerit goods are goods that the state believes will be over-consumed if left to the free market forces because some individuals are unable to factor in the dull private costs of consumption. For example, goods like alcohol and cigarettes may result in severe health and financial problems when excessively consumed and since there are people that still consume them thinking that the marginal private costs do not exceed the marginal private benefits, when it is in reality, thus results in market failure. 

[Insert diagram on demerit good]

For demerit good, the private outcome is when MPC = MPB at Qp, while the social outcome is at Qs when MSC = MSB. Between Qp and Qs, since MSC > MSB, this results in a deadweight loss represented by the triangle pointing towards Qs, where the good is over-consumed in the case of demerit goods. 

In conclusion, prices do not always accurately reflect their costs and benefits of the market. As seen in the cases of merit goods and positive externalities, the goods are under-consumed by the society although the marginal social benefits outweigh the marginal social costs, and in the case of negative externalities and demerit goods, the marginal social costs outweigh the marginal social benefits and the goods are over-consumed. Therefore, the deadweight loss – the loss in potential welfare of the society due to the over-consumption and under-consumption of goods leads to market failure.

JC Economics Essays - H1, H2, H3 sample essays - tutor's comments: Market failure and the operation of the free market under conditions of perfect competition are important economics topics for both Economics at A levels and introductory undergraduate economics courses, and as such this might be a useful topic to prepare for examinations. It might be a good idea to get a firm understanding of how markets operate and how market failure distorts the workings of the price mechanism as it allocates resources. In this section on comments on the above economics paper, instead of providing general feedback or pointing out what went well and went not so well with it, I will ask questions instead: using Bloom's taxonomy as an intellectual framework to address this economics essay, has the student identified the topic properly, defined and explained key terms, drawn the right diagrams, explained the economic theory with real world examples, explained the diagrams drawn, and come to a reasoned, fair, nuanced conclusion? What has the essay writer done well, and what has the essay writer got to improve on and make better? Are there economics materials that you would have added, and why are these additional concepts, ideas, and arguments important and relevant? Think through these issues. I should give a hint for an important enduring understanding: structure is important to good essay writing, and this economics paper is well structured and well laid out. Always remember to improve on your writing skills, and craft well-thought-out, clear economics essays. Special thanks to S S and A G once again for their useful, relevant, and interesting contributions. Thanks for reading and cheers. 

Explain with relevant examples why imperfect information and the immobility of the economic factors of production lead to market failure.

Market failure refers to the situation where the free market fails to achieve an outcome that maximizes society’s welfare, of which imperfect information and the immobility of the factors of production, which refers to the inability of resources to move perfectly from one market to another in response to changing market conditions, would lead to market failure as well. In my essay, I explain how the above two factors cause market failure.

Imperfect information is the situation where people engage in economic transactions without having perfect information of what they are buying, due to a discrepancy between the perceived benefit or cost and the actual benefit or cost. Due to the lack of perfect information, consumers end up buying something that is not what they really want or need. This is because consumers are often swayed by persuasive advertising and sales staff pushing products based on commission. As a lot of time and effort is required for one to acquire all the necessary information as they lacked the time and expertise to learn about the many products in the market, this principal-agent problem is likely to persist. Hence, when a consumer buys a good that is not what they really want or is less suitable, his welfare is below the socially optimum level and this gives rise to market failure. 

Imperfect information also contributes to market failure that arises from negative externalities and the presence of demerit goods. This is because adverse effects are imposed on third parties when these goods are produced or consumed. Externalities are defined as third party spillover effects, where third parties are affected when goods are produced or consumed, and demerit goods are goods which the government deems undesirable in the light of consumers lack of information or due to the negative externalities imposed on third parties.

In this case of demerit goods, individuals are unaware of the social cost incurred during their consumption of the good. Both negative externalities of production as seen in the figures below. Without government intervention, MPB = MPC and output is at Qp. The social equilibrium Qs is at MSB = MSC. Since MSC > MSB, a deadweight loss is generated. Since Qp > Qs, the good is over-produced. 

[Insert diagrams on negative externalities from production and consumption]

As for demerit goods, when MPB = MPC, the output is at Qp. However, the social outcome Qs is where MSB = MSC. Between Qp and Qs there is a loss of potential welfare (deadweight loss). Since Qp > Qs, the good is said to be over-consumed. 

As for factor immobility, there are two major types – occupational and geographical immobility. Occupational immobility of labour arises because workers lack the required education or skills to take on new jobs in another industry. For instance, people working in fields with low technology will find it hard to work in Silicon Valley due to their lack of knowledge, thus making them occupationally immobile. On the other hand, geographical labour immobility exists in large countries when there are barriers to people moving from one region to another in search of jobs. This barriers include family and social ties and cost involved in moving to another area to settle down. Large countries like the USA and the UK will face these sorts of geographical immobility problems and issues. 

Market failure arises as resources are unemployed due to factor immobility and hence the economy is producing inside its PPC. Hence, the outcome is productive inefficient and also allocatively inefficient.

[Insert a diagram on production possibilities curve]

The diagram shows that there are unexploited resources untapped, and therefore there is productive inefficiency. Also, there could be market failure due to allocative inefficiency. This is because resources are unable to flow from contracting to expanding markets. Hence, society’s welfare is not fully maximized and it can be argued that market failure results. 

In conclusion, imperfect information is often present in market dominant firms such as oligopolistic and monopolistic firms as they are price setters with large market power, often arising from possession of asymmetric information. Imperfect information prevents consumers from knowing all the prices and the product production processes also. Therefore, it is difficult to remove the presence of imperfect information as it is so prevalent. Factor immobility is also another common cause of market and it is difficult to be eradicated. Hence, market failure would tend to persist.

JC Economics Essay - H1, H2, H3 economics essays - tutor's comments: There are a lot of small problems with this economics paper that can be easily remedied, and therefore the question is: what are the areas that need to be worked on for this essay? Having said that, there are many salient strengths to this economics essay answer as well: think, what are the strengths and good points of the material presented in this economics essay? While fairly strong in economic theory, and covering most of the relevant ground to address the question posed, and having lots of interesting angles and possible areas of discussion, this economics essay answer could have more relevant examples and be more vivid, clearer, and better by giving specific real world examples for each model, theory, or economics concept mentioned. This economics essay could have pushed the envelope, but did not go too far nor did not stretch the point to emphasise, highlight, showcase certain good economics material, which would have vastly improved it. What other areas of improvement do you see and notice, and how would you have approached this essay question? Think about how to improve on this economics essay - how you can value add to this suggested, possible answer. Special thanks to A G and S S for their contribution. 

Evaluate economic policies currently used by the Singapore government to correct imperfect information and immobility of the economic factors of production, to correct market failure. [25]

This economics paper is about economic policies in Singapore that target market failures, in particular imperfect information and immobility of the factors of production, which hamper the workings of the invisible hand through the price mechanism. The Singapore government has been active in combating market failure through the use of taxes, subsidies and laws. These policy methods have shown to be useful in reducing imperfect information and factor immobility. However, these policies are not foolproof and they do have their limitations. Therefore, in this policy essay, I would discuss if the policies adapted by the Singapore government have achieved their policy aims.

           

One of the laws implemented by the government is mandatory pricing. This policy requires all retail stores in Singapore to display their prices, which then allows consumers to obtain the pricing information more easily than before. This policy in general therefore reduces imperfect information and also allows price discrimination since it reduces the chance for shop owners to charge some consumers more than others.

           

Another of such laws implemented by the government would be the implementation of the ‘Lemon Law’. This law allows consumers to return the products within a stipulated period and it is usually within six months of purchase. This policy protects consumer rights as they are allowed to return the goods that they deem unsuitable for themselves. This reduces the impact of having imperfect information since goods are made refundable.

           

Also, the government has made it mandatory for hospitals to display their average hospital bills on their respective websites. This is because many people do not know the cost of seeing a doctor and this would affect the ability to make decisions and to seek the most suitable medical treatment. The publishing of prices also serve to reduce the extent of principle-agent problems since consumers are now able to obtain more information than before.

           

In addition, the government heavily subsidized primary and secondary education as education is deemed as both a positive externality, which refers to the positive spillover effects it can have on third parties, and a merit good, which refers to a good which the state feels will be underconsumed if it is left to the free market. Since children may not attend schools as they do not know what is best for them and their parents may be short-sighted and hence do not let their children attend school, subsidizing education will incentivize parents to send their children to school. To complement this, the government has established a law which makes attending primary and secondary school compulsory so locals can receive at least a basic education.

           

As for factor immobility, geographical immobility is arguably not directly applicable to Singapore since Singapore is a small country and has well-established transport networks. Hence, it will be unlikely that people will experience geographical immobility.

However, occupational immobility is a problem in Singapore and the government has done much to deal with it. Some examples will be subsidizing upgrading and computer courses for people so that these people can upgrade their skills and remain competitive and relevant in today’s society. Educating locals such as having English courses would also help them to find a better job. Hence, occupational immobility is corrected.

           

Going on to discuss the benefits of these policies, the use of laws is rather effective in reducing the problem of imperfect information. Mandatory pricing is useful as customers no longer has to ask about the prices before purchasing it and more price transparency allows consumers to compare prices between shops and choose the best and most suitable product for themselves. Shop owners and retailers are also unable to exploit consumers.

           

As for Lemon’s Law, it reduces the incentive of the sales person to boast about the functions of the product so as to get customers to purchase them. This is because customers now have the right to refund the goods if they are not satisfied with them. Hence reduces the chance of firms withholding information from customers in order to push up their sales.

           

Also, getting hospitals to display prices is a good move since pricing is definitely more transparent now and patients are able to make better choices for themselves in terms of deciding on their own preferred medical treatment. They would also not be taken aback when they see the amount they have to pay at the end of the treatment since they already do have the information.

           

Furthermore, the government has successfully prevented education from being under-consumed due to imperfect information. This is because Singapore’s literacy rates are one of the highest in the world and many enjoy the privilege of going to school despite their family background.

           

Lastly, education and training programmes implemented by the government has been useful in helping the retrenched get new jobs. It has also allowed many to obtain new skills and obtain better paying jobs than before and therefore improving their standard of living. Occupational immobility can be overcome through these policy measures.

In conclusion, the policies implemented by the Singapore government to correct market failure caused by imperfect information and factor immobility have largely been successful. However, there are some drawbacks. For instance, since hospitals want to remain competitive and to reduce their prices, they may sacrifice on their quality of service in order to cut costs. Also, as for the Lemon’s Law, a lot of administrative costs could be incurred as the products can be returned and it may be troublesome for firms to keep track of these requests. This law may also be misused by consumers as consumers may purchase the good and use it for a while and then return it later on when they no longer have use for it or grown sick of it. This puts firms at the losing end and they might not be able to profit from their businesses. In addition, it is very difficult to get adults to go for skills upgrading and training as they may have lost touch with it. Some may lack basic training as well and it would be difficult to undergo training and education. Hence, not all government policies are foolproof.

JC Economics Essays - H1, H2, H3 economics questions and suggested answers - Economics tutor's comments: This economics essay on market failure in the context of Singapore is very good in the sense that it provides a lot of economics application, and real life examples and answers. Examples are very good and should be used to provide a beautiful, well rounded answer to economics questions. However, it does not define many key terms and does not explain many of the economic theories that are relevant. Always remember to define key economic concepts and key economic terms because the examiner would want to see if the candidate knows his or her economics material well. Also, there is the need to use clear, well explained, economics diagrams to illustrate key concepts and arguments, which is sorely lacking in this economics paper. However, having said that, overall this paper can do quite well because of its strengths as well as the interesting evaluative comments and analysis made towards the end of the paper. What are the other strengths of this economics essay? Special thanks to S S, A G and S H for their contributions to this economics paper. 

Explain, with relevant examples, the economic circumstances when prices do not accurately or correctly reflect actual benefits and costs, and explain how free markets fail as a result. [10]

The general theme of this economics essay is on market failure. The circumstances when prices do not correctly reflect costs and benefits include the presence of externalities, both positive and negative, merit and demerit goods, as well as imperfect pricing information. Therefore, this essay aims to explain how the above mentioned circumstances will lead to market failure.

What are externalities? Externalities refer to the spillover effects on third parties arising from the production or consumption of a good. They can then be sub-divided into positive externalities, referring to benefits imposed on third parties, and negative externalities, referring to adverse effects imposed on third parties.

Prices are usually set at the intersection point of the market demand and supply curves. However, in the case of positive externalities, prices do not reflect the actual costs and benefits since the market demand and supply curves fail to take into account the marginal external benefits brought about by the consumption and production of the good.

[Insert diagrams on positive externalities from consumption and production]

Marginal external benefits (MEB) is defined as the additional benefit enjoyed by third parties from the production or consumption of a good. For positive externalities in consumption, assuming no externalities on the production side, positive externalities results in MSB exceeding MPB by the amount equal to MEB. Without government intervention, the private equilibrium is at Qp, where MPB = MPC. However, the socially optimum equilibrium is at Qs where MSB = MSC. Since Qp < Qs, the good is under-consumed, resulting in allocative inefficiency and hence the market fails. An example would be the consumption of vaccination, where the risk of disease is reduced for both the vaccinated person and third parties he comes into contact with.

Similarly, for positive externalities in production, assuming no externalities on the consumption side, there is a divergence between MPC and MSC due to MEB. The private equilibrium is at Qp where MPC = MPB, while the socially optimal equilibrium is at Qs, where MSC = MSB. Since Qp < Qs, the good is under-produced, resulting in allocative inefficiency and hence market failure. An example would be the production of honey which bees would pollinate the nearby fruit orchards.

In the case of negative externalities, prices do not reflect the actual costs and benefits as the market demand and supply curves do not take into account the marginal external costs bought by the consumption or production of the good.

[Insert diagrams on negative externalities from consumption and production]

Marginal external costs (MEC) id defined as the additional costs imposed on third parties from the production or consumption of a good. For negative externalities from consumption, assuming no externalities on the production side, there exist a divergence between MSB and MPB due to MEC. This results in the over-consumption of the good as seen from how the private outcome Qp exceeds the socially optimal outcome of Qs. The outcome is allocative inefficient and thus the market fails. An example would be smoking, where third parties incur costs such as the inhalation and breathing in of second hand smoke.

For negative externalities from production, assuming no externalities from consumption, there exist a divergence between MPC and MSC due to MEC. This results in the over-production of the good, seen from how Qp exceeds Qs, resulting in allocative inefficiency and hence the failure of the market. An example would be the disposal of industrial waste into rivers, causing water pollution which poisons the catches of fishermen whom are third parties.

Next, prices also do not reflect the actual costs and benefits in the case of merit and demerit goods. Merit goods refer to goods in which the state believes will be under-consumed if left to the free market because some individuals are unable to factor in the full private benefits of consumption. 

[Insert diagram on merit good]

For merit good, between Qp and Qs, MSB > MSC, thus the triangle pointing towards Qs represents the area of deadweight loss arising from allocative inefficiency, since the good is under-consumed. Hence the price will not be accurate in reflecting the benefits instead it is at MPB. An example would be the consumption of education where a person may leave school early because he is too young to understand education can improve his future. 

On the other hand, demerit goods are goods which the government believes will be over-consumed if left to the free market because some individuals are unable to factor in the full private costs of consumption.

[Insert diagram on demerit good]

For demerit good, between Qs and Qp, MSC > MSB and Qp > Qs, thus the triangle pointing towards Qs represents the area of deadweight loss arising from the over-consumption of the good, resulting in allocative inefficiency and thus market failure. Hence the price of the good will not be accurate in reflecting the costs since the demand of the good is at MPB, while it should have been at MSB. Examples of demerit goods include alcohol, where excessive consumption results in serious health and financial problems.

Lastly, where there is information asymmetry with regards to pricing, prices will not reflect the actual costs of production as sellers will be able to charge prices that are higher than marginal costs. This is due to the fact that buyers find difficulty acquiring pricing information from different sellers, thus gives seller pricing power and enable them to charge prices that are higher than marginal costs. Therefore, deadweight loss is generated and market failure occurs.

In conclusion, there are various instances where prices do not reflect the actual costs and benefits and in most of the cases, the resulting market failure arises due to the presence of allocative inefficiency.

JC Economics Essays - H1, H2, H3 economics essays - tutor's comments: This economics essay paper is very well done, by directly addressing the question requirements, and providing clear, simple to understand, direct examples that target the requirements of the economics exam question. Always remember to answer your economics exam question as it stands, and not as you imagine it to be. The student also has a very sound understanding of economic theory, and knows how to properly structure the memorised economics material and essay answer to make this paper a model essay. This model paper was done under timed conditions, which makes it even more remarkable. Thanks to S for editing work done, and thanks to A G and S H for their kind and invaluable contributions. Usual question applies - how can you apply this to your essay writing, and how could you write a better economics paper? Always seek to improve and better your standards. 

Should governments always intervene when free markets fail to allocate resources efficiently? [15]

It should be recognized that free markets often fail due to allocative inefficiency, and there are various ways where governments can intervene to improve the outcome of resource allocation. However, governments should not always intervene as there are instances where intervention results in a less desirable outcome. This essay thus aims to analyse the pros and cons of the various ways of government intervention, and instances of government failure.

Yes, governments should intervene to improve the efficiency of free markets. Firstly, government policies to bring down the output level to the socially optimal output level can be divided into two categories, one market-based and another of direct control. A per unit output tax of the good raises production cost, thus reducing the output to the socially optimal outcome when there are negative externalities or demerit goods.

[Insert diagram for tax]

By imposing a per unit tax equivalent to MEC, MPC shifts to the left, thus bringing the output level down to Qs, coinciding with socially optimal output level. Hence, there should be intervention as it allows allocative efficiency to be achieved. 

On the flipside, an output subsidy would lower production costs, thus raising production to an output level coincidental to the socially optimal outcome, bettering the situation where there are positive externalities or merit goods.

[Insert diagram for subsidy]

By giving an output subsidy equivalent to MEB, MPC is shifted to the right, thus bringing the output level forward to Qs, the socially optimal level. Thus, allocative efficiency is similarly achieved.

While controlling output directly is a faster and more straightforward method, some may argue for the use of emission charges in the case of negative externalities as it advocates specific actions to cut down on the externalities which seem to some as a more long term solution. For example, in the case of pollution, emission charges induce firms to directly reduce pollution by the addition of a filter or the switch to less polluting production methods. However, there are limitations to such a policy as it gives high administrative costs due to the difficulty faced in monitoring emissions as compared to output.

When market-based policies fail to work, it may be sensible for the government to intervene with direct controls. An output ban could be used to forcefully bring down the output level to the socially optimal one. 

[Insert diagram on total ban]

An output ban will be advisable in the case where MEC is so large that the socially optimal output occurs at Qs = 0. In this case, a ban will be allocatively efficient. However, it should be noted that in a case where the MEC is relatively small, government intervention is not advisable as the outcome is even more allocative inefficient. As seen in the diagram above, when the government does not intervene, the area of welfare loss is smaller than when the government chooses to impose a total ban where quantity will be brought to zero. Hence, output bans are very extreme and thus governments should only intervene with a ban if MEC is large.

Another form of direct control would be direct free provision by the government to bring the output level to one that is socially optimal.

[Insert diagram on free provision]

For free provision, the MEB is so large that the socially optimal outcome occurs at Qs. Thus output has to be subsidized to such a large extent that the price of the good effectively becomes zero.

However, just like an output ban, free provision is very extreme and should only be used when the extent of MEB is very large. 

Where MEB is relatively small, MPC needs to be shifted to the right in order for socially optimal outcome to be achieved. Therefore, if the good was to be provided for free, the good will be over-consumed, resulting in a deadweight loss, implying that the outcome is worse than before intervention. Hence government should not intervene. 

In conclusion, despite substantial pros brought about by government intervention, the government should not always intervene as there will bound to be cases of government failure when the extent of intervention required is wrongly judged as seen from the examples above. Furthermore, the extent of administrative costs of some of the methods of intervention outweighs their benefits, translating to the view that the government should not always intervene.

JC Economics Essays - H1, H2, H3 Economics Essays - tutor's comments: While there is a lot of good economics material in this generally well written essay, the main problem is that it could have addressed the examination question more directly and targeted the answer better to the economics question specifically. Having said that, there are some saving graces to this economics essay. There is great use of varied economics diagrams, a lot of explanation, solid economic reasoning, and generally good application of economic principles and ideas, concepts, and logic. These save the essay quite a lot. However, better use of essay technique and more direct answering of the question would be great and would raise the grade achieved - also, lots of economics examples should also have been used. What other ways could be used to improve this essay? Think of how you could make this economics paper even better than it already is. 

Evaluate the economic policies currently used by the Singapore government to correct imperfect information and the immobility of the factors of production, two major causes of market failure. [15]

Adapted from an actual H2 'A' Level Economics examination paper

Just like many other countries, Singapore has also been experiencing problems of imperfect information and immobility of factors of production thus leading to market failure. The Singapore government has come up with some policies in hope to improve the situation. This paper discusses the economic policies used by the Singapore government to correct imperfect information and the immobility of the factors of production. 

               

First, to reduce imperfect information, the Singapore government has tried to improve the flow of information through the use of the Internet. As more people do their research on the Internet to find out more about what they really want or need, putting more information on the Internet can help to improve information flow, though it may be more helpful to only the younger generation.

               

The Singapore Government also implements rules and regulations of compulsory food labels on all packaged food. They also introduced the healthier choice and safety labels  on food and appliances respectively to help consumers to make better decisions when consuming a product. As for the insurance company, there is a certain guideline where consumers have to report their medical condition or the company will not cover for them. Although it is easy to implement these regulations, there is a high regulatory cost to it.

               

The Singapore Government also set up many job agencies like Recruit Express and JobsCentral to improve the flow of information so that workers and employers can find a job or worker more easily and efficiently.

               

The Singapore Government can also initiate campaigns to raise awareness among consumers to read up on the product and look for labels on them before consuming a product in order to make a better decision. However, this might have time lag and it is difficult to for them to start making it a habit instantly.

              

As for occupational mobility, since workers do not have the right skills to work, government can provide tax cuts for employers who send their employees for courses to upgrade themselves or learn a new skill so that they will be more efficient and have better ability to handle their tasks better. Nonetheless, this may not be a popular policy among employers as they are making a loss by sending their employees for courses as it will result in a smaller workforce working thus lesser production while having higher cost incurred due to the course fees. Although, the firm will most likely benefit in the long run, employers cannot be certain that the employees will stay with them for a long time, therefore losing the long term benefit.

               

The Singapore Government has also set up the Workforce Development Agency (WDA) where they work with the unique tripartite trade union that Singapore has to subsidise firms that send their employees for courses to upgrade themselves or individuals to pick up a new skills so as to increase job opportunities for especially the unemployed. WDA will also try to link up the unemployed with a job during the training sessions so as to reduce the amount of lag time. Furthermore, government has set aside a Skills Development Fund to aid these people since Singapore is a small and open economy that often experiences structural unemployment due to an ageing population with many older workers. However, this may not be effective as it is difficult for older workers or less educated individuals to pick up a new skill especially since they have no basics to build on. Also, many workers will only see these courses as a waste of their time since they can be using the time to earn more money in order to cover their living expenses.

               

In addition, the Singapore government has implemented compulsory primary education for all citizens. Being educated will help them to take up new skills in future since Singapore’s small and open economy forces us to adapt to changes quickly by developing new comparative advantages to catch up with time. However, this requires a large amount of budget to be placed into education in order to make education affordable for all.

               

Lastly, the Singapore government has come up with urban planning to solve the problem of geographical immobility. We started to have small regional business areas like Tampines rather than all firms to concentrate at City Business District (CBD). This will not only help individuals to travel less since most housing estates are in the East, it also helps to divert traffic away from CBD.

                

In conclusion, the Singapore government should use a combination of market-based and non-market based solutions, as well as consider their long term and short term effects, in order to better achieve pareto optimality and reduce market failure.

JC ECONOMICS ESSAYS - Economics Tutor's Comments: This economics essay has a lot of good material on the Singapore government, economic policies, and the Singapore context, which is excellent - always address your material to the context of the question. Answering the essay question with reference to real world, relevant, and specific examples is an incredibly effective exam strategy in economics examinations. Remember always to have good examples alongside excellent understanding of economic theory and models. However, the usual questions apply - how would you improve upon the essay introduction? What is good or what is not so good about the body of the paper? What is good about the essay conclusion? Take note of the excellent use of signposting in the conclusion. However, how could the conclusion be buttressed and developed? What else could the student have written, or how could the student have written the evaluative conclusion better? Think about how you would write a better conclusion to make this economics essay the best that it can be. 

Explain carefully why imperfect information and the immobility of the factors of production might lead to market failure. [10]

Adapted from an actual H2 A levels Economics examination

Usually, a market is left to market forces to work in a free market system. However, if the market fails to achieve Pareto optimality, where society’s welfare is not maximized, the government should intervene to reduce the welfare loss. Imperfect information and immobility of factors of production are examples of market failure.

 

Imperfect information happens when there is no perfect information flow, where either the buyer or seller made a decision before understanding the goods and services or the consumer needs due to the lack of time or expertise in it. It also happens between sellers especially when one has more market power over the other. Imperfect information is seen when consumers are left to choose a variety of similar products at supermarkets, not knowing which is best for them. Therefore, they may make the wrong decision and not consume the good that they exactly want or need, reducing their utility and resulting in welfare loss.

   

Another example of imperfect information is asymmetric information. Asymmetric information happens when one party, either the buyer or seller, knows more than the other party. An example of a case where buyer knows more than seller is consumers of insurance know more about their health and may choose not to let the insurance company know. Consumers that are more prone to illnesses usually buy insurance to cover them, causing the insurance company to make a loss. An example of a case where seller knows more than buyer is a promoter knowing his product well but he will only choose to tell the advantages of the product using persuasive talking, resulting in the consumer making the wrong decision as her cost-benefit analysis is biased. This will thus lead to welfare loss, causing the market to fail.

              

Immobility of factors of production causes market failure when there is a geographical or occupational immobility. These are forms of labour immobility as with the help of international trade, capital and enterprise are more mobile while factors of endowments like oils and minerals can be traded from one another.

               

Geographical immobility happens when one does not want to move to another country or state to work even if there is a more suitable job available. This is caused by the difference in culture, cost of living, family relations and many other reasons. These will lead to the worker having to choose a less suitable job that he may not be as skilled in, resulting in welfare loss since he does not use his skills fully and efficiently, therefore the market fails.

               

Occupational immobility happens when there is structural unemployment and people cannot find themselves a new job as they only have skills for the sunset industry which is not in demand for workers. There is a mismatch in the jobs available and skills of workers causing the labour force to be not fully employed while having shortages in firms especially from sunrise industries, thus output is reduced and there is a welfare loss, causing market to fail.

               

In conclusion, imperfect information and immobility of factors of production are common causes of market failure in reality. Government should therefore step in to use a range of interventionist policies to reduce these welfare losses and aim to achieve Pareto optimality through a combination of policies.

JC ECONOMICS ESSAYS: Economics tutor's comments - This economics paper is direct, clear cut, and to the point, and tries to address the requirements of the economics question posed as clearly as possible. The conclusion to this essay is simple but well thought through, and does not need to be long, analytical, and evaluative simply because this is an "explain" question (that is the command word) and also because this is not a 13, 15, or 25 mark paper, which would require a more developed, evaluative, and judgmental conclusion to get the highest possible marks in an examination. This economics paper has all the relevant economics material, theories, and ideas, but could profit more perhaps from more direct examples and specific real world examples that are applied to the context, which could develop the essay further. However, the usual questions also apply here - how could this essay be further improved? Special thanks to A G and other contributors who contributed this economics material. Thanks for reading and cheers!