Market failure
1 - Price volatility leading to uncertainty buffer stock as a solution
2-Affordability and equity issues linked to food prices or housing - policy price ceiling /subsidy
3 - Monopoly lowers output and raises price to maximise profit - policy nationalisation or break up but can be good due to economies of scale and profits spent on innovation
4 - Merit and demerit goods combine externalities with private information problems - policy subsidy or tax + information
5 - Externalities - tax or subsidy
Government failure occurs because of:
Incomplete information
Political bias
Unintended consequences
Admin costs greater than policy benefits
Public good and the free rider issue is relevant in the evaluation of policy for environmental problems -commons goods such as fish in the sea are quasi public good this means they are non excludable but rival - a tragedy of the commons occurs in that everyone over exploits the resource until it is depleted - policy is difficult to formulate as others can free ride on countries putting strict environmental codes in place - they feel the cost of their action but everyone benefits - thus it is difficult to get anyone to take action
Remember keep it simple-discuss
1 Problem
2 policy solution
3 alternative policy
4 Conclude on govt failure and extend to greater complexities if time
Eg
Price volatility due to Inelastic d and s and supply side shock
Policy price guarantee - buffer stock with problems
Alternative ceiling and floor with acceptable range
Conclusion difficultly of controlling global forces with domestic policy
