2023 ACJC H2 Market Failure Tutorial Worksheet

©ACJC Econs Dept/2023/Market Failure & Government Intervention Tutorial Worksheet 1 ANGLO-CHINESE JUNIOR COLLEGE JC1 Economics H2 MARKET FAILURE AND GOVERNMENT INTERVENTION Tutorial Worksheet 3 Section A: Discussion Questions Question 1: Public goods and private goods In each of the following cases, consider whether the good/s ervice is a private or a public good. Explain your answers. a. Parking spaces b. Police services c. National museum d. Public housing e. Explain why the markets for (b) and (c) above would fail. Question 2: Salmon Farming Costing Environment Salmon farming is wreaking ruin on marine ecosystems, through pollution, parasites and high fish mortality rates which are causing billions of pounds a year in damage, a new assessment of the global salmon farming industry has found. Taken together, these costs amounted to about $50bn globally from 2013 to 2019, according to a report published on Thursday. The report exam ined the salmon farming industry in Canada, Norway and Chile. It found that of the costs associated with fish farming, about 60% were borne by the producers, especially in the form of fish mortality and the cost of treating sea lice, but about 40% of the costs were borne by wider society, for instance in pollution, loss of fish populations from overfishing and the impacts on the climate crisis. Chemicals and excess nutrients from food and feces associated with salmon farms can have unintended consequences for marine organisms and human health. “Aquaculture activities are an interconnected part of the ecosystem in which they exist, and salmon farms make use of ‘free’ coastal ecosystem services such as clean water, appropriate temperatures, nutrient levels and so on. They also contribute to their deterioration, however, due to local pollution impacts from uneaten feed and feces, which are directly discharged into the marine environment.” the report reads. Scan this QR code to learn more about the environmental impact of fishing.

©ACJC Econs Dept/2023/Market Failure & Government Intervention Tutorial Worksheet 2 Salmon farming is an industry that has grown dramatically in recent years, as the world’s appetite for fish is also growing. Not only it’s already the fastest -growing food production sector in the world, but continued global growth in demand is expected. Adapted from: ZME Science and The Guardian, 11 Feb 2021 a. From the above extract, identify examples of private and external costs of salmon farming. b. Using a diagram, explain how the production of salmon results in an inefficient allocation of resources when left to market forces. c. Explain how a taxation policy might achieve allocative efficiency. d. What are the limitations of using taxation to achieve efficient allocation of resources? Question 3: Healthcare in Singapore Singapore offers universal healthcare coverage to our citizens, with a financing system anchored on the twin philosophies of individual responsibility and affordable healthcare for all. Through a mixed financing system, use of market -based mechanisms to promote competition and transparency and the adoption of technology to improve the delivery of healthcare services, we have secured good healthcare outcomes for our population. We have done so with a national healthcare expenditure of about 4% of our GDP, which is low among developed countries (although this is expected to grow with an ageing population). The mixed financing system involves multiple tiers of protection to ensure that no Singaporean is denied access to basic healthcare because of affordability issues. This is illustrated in the following diagram. Source: Ministry of Health Singapore a. Identify the private benefits which consumers would gain from consuming healthcare services. b. Explain how third parties would benefit when individuals consume healthcare services. c. Using a diagram(s), explain why there is market failure in the market for healthcare. d. Explain how any one of the approaches used by the Singapore government could encourage the consumption of healthcare and correct the market failure. e. Explain two factors that might determine the success of the approach you chose in (d).

©ACJC Econs Dept/2023/Market Failure & Government Intervention Tutorial Worksheet 3 Question 4: Policies for health improvement (Adapted from H2 A Level 2018) Section B: Case Studies Questions

©ACJC Econs Dept/2023/Market Failure & Government Intervention Tutorial Worksheet 4

©ACJC Econs Dept/2023/Market Failure & Government Intervention Tutorial Worksheet 5 Questions (a) (i) Using the information in Extract 1, calculate the value of the price elasticity of demand for sugar-sweetened beverages (SSBs). [2] (ii) Explain one possible factor that could lead to this value. [2] (b) (i) State the economic concept you would use to measure the relationship between the change in the price of SSBs as sales taxes are imposed and the resulting change in the demand for bottled water. [1] (ii) Explain the value you would expect to get from this measurement. [3] (c) Discuss whether consumers could ever make rational decisions regarding their consumption of SSBs. [8] (d) Discuss whether fiscal intervention is the best government policy to deal with the problems caused by over-consumption of SSBs. [10]

©ACJC Econs Dept/2023/Market Failure & Government Intervention Tutorial Worksheet 6 5. The Singapore government uses the Certificate of Entitlement (COE) system, the electronic road pricing (ERP) system, and the improvement of the public transport system to address the problem of traffic congestion. (a) Explain why traffic congestion leads to market failure. [10] (b) Evaluate the various policies the Singapore government can use to reduce traffic congestion. [15] (ACJC Mid-Year Assessment 2015) 6. There is considerable agreement over the need for governments to provide public goods. There is less agreement over the extent to which markets fail because of imperfect information. (a) Explain the case for government intervention in markets for public goods and where information is imperfect. [10] (b) Evaluate the alternative policies that are adopted by the Singapore government to correct for both these types of market failure. [15] (adapted from: A-Level 2014) 7. All residents in the United Kingdom (UK) are automatically entitled to free public healthcare through the National Health Service. On the other hand, Singapore adopts a universal healthcare coverage through a mixed financing system with individual payments and subsidies from the government. (a) Explain why a government intervenes in the market for healthcare. [10] (b) Assess the economic case for the different approaches between the UK and Singapore governments in their healthcare markets. [15] (NJC Prelim 2021) Optional Essay Question: Note: 8a was covered in the Central Economic Problem tutorial. 8b is a Market Failure question. 8. Prospective students and governments each make decisions that affect the scarce resources that are devoted to university education. (a) Explain the determinants of a rational prospective student’s decision on whether to participate in university education. [10] (b) Discuss the factors that governments should consider in allocating resources to university education. [15] (A-level 2015) Section C: Essay Questions

©ACJC Econs Dept/2023/Market Failure & Government Intervention Tutorial Worksheet 7 Part 1: Case Studies on SLS: Access the following case studies on SLS for further practice on this topic. You will need to login to your SLS account to access the resources.