8.1 Government policies to achieve efficient resource allocation and correct market failure

Privatisation is often required by the International Monetary Fund (IMF) and the World Bank before they are prepared to offer support to countries requiring loans, grants, debt relief and debt cancellation programs.

Evaluate the view that privatisation will always improve the allocation of resources in a country.

[20]

Market failure exists in all economies.

Evaluate, with the aid of a diagram(s), the meaning of market failure and two policies a government may use to correct market failure. [20]

With the help of a diagram, assess the effectiveness of a government's intervention in the price mechanism to address the causes of climate change. [20]

Pollution is caused when consumers or producers make decisions based on self-interest. This is a sign of market failure.

With the help of a diagram, evaluate the extent to which government policies should rely upon market forces to address this market failure. [20]

b) Evaluate two policies a government may implement to reduce the impact of climate change. [13]

Analyse the reasons why it might be thought necessary for a government to control dominant firms in an industry and consider the methods it might use to achieve such control. [25]

Discuss whether market failure can be successfully eliminated by governments. [25]

b) 'Market failure can always be overcome to increase economic efficiency.' How far do you agree with this statement? [13]

'Smoking cigarettes causes negative externalities and negative externalities cause market failure, which can only be solved by government intervention.'

To what extent do you agree with this statement? [25]