AS3.3 Describe market failure and government interventions to correct for market failure 4 credits Describe market failure Describe government interventions used to correct for market failure AchievementMeritExcellence Explain market failure Explain government interventions used to correct for market failure and their impact on equity and efficiency Fully explain government interventions used to correct for market failure and evaluate their impact on equity and efficiency descriptions in words, diagrams, flow charts, graphs say why or how, give reasons for, predict, interpret, compare, distinguish explain in depth and/or breadth assess/judge the impact of each intervention and could include prioritising, making recommendations and/or justifying them

‘Every individual endeavours to employ his capital, so that its produce may be of greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And he is in this led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of society more effectually that when he really intends to promote it.’ Adam Smith, 1776 The automatic workings of the marketplace (demand and supply) will, if left alone, allocate scarce resources to their most efficient use for the overall benefit of society.

P Q D S The Market pepe qeqe Does the demand curve truly reflect consumer desires? Does the supply curve truly reflect the costs of production?

Consumers have free will and behave rationally Consumers (and producers) know all they need to know about the product, the prices and the consequences of their choices Resources are all free to move to areas of greatest need Producers will always create all that is required Perfect competition exists Textbook p The market requires that: Workbook p , Q1-4 minutes

Economic Functions Economic Objectives Tools of Intervention a legal and social framework maintenance of competition provision of public goods redistribution of income correcting externalities stabilising the economy economic growth full employment an equitible distribution of income price stability balance of payments at equilibrium taxes subsidies provision regulation transfer Ref: Text p182-5 Ref: Text p182 Ref: Text p180-1 Workbook p , Q5-8