Key points econ1

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