revision tip 3

ECON 1 Essay (Part D - Data Response) 25 Minutes

The basic framework for your essay is going to be similar to the one below:

Introduction
How the market works
Why the market fails

Either supported by a clear data reference to the extracts provided to place it firmly within the context set.

The opening should finish with highlighting the options open to government in terms of intervention.

Body of Essay
2 issues defined illustrated and analysed with advantages and disadvantages

Conclusion
Suggested solution (justified on evidence presented)
Spectre of Government Failure?

Clear paragraphing, short punchy sentences concise definitions and fully labelled diagrams will secure high marks.


Example Jan 2009 Question 26 Pasta Prices:

Introduction
What has happened?
Price of Pasta has risen 20% (ex C line 3) of the back of rising wheat prices (Diagram possible - decrease in supply leads to rise in price) price mechanism at work

Why is this a case for Government internvention?
Pasta Italian staple 28kg household per annum (exC line5). Poverty issues lower real income may challenge living standards of poorest households. Equity an issue.

What options are open to Govt?
Needs to make pasta accessable to low income households thus:
Price ceiling
Subsidy
(many other options these are the simplest two)

Body of essay
Price ceiling - definition and diagram
+ve:
price controlled at acceptable level
easy to implement and maintain
-ve:
excess demand - shortages
black market
allocative efficiency

Subsidy - defintion and diagram
+ve:
lowers price while maintaining availability
welcomed by pasta producers and consumers
-ve:
cost - tax levels? opportunity cost?? (other public spending)
allocative efficiency

Conclusion
Both policies short run solutions dealing with symptoms rather than cause
wheat prices the issue? options??
maybe price of pasta has been too low?
maybe monopoly is the issue?? (exC line8)

Govt Failure may result from intervention?
admin costs/ level of subsidy or price ceiling incorrect / incentives distorted

perhaps price mechanism must be trusted?

If poor households are the problem why not support incomes not price of pasta - better targeted and more effective.