Markets are generally thought to work well, allocating resources to where they generate the most utility. Following on from Adam Smith's 'Invisible Hand', the natural self-guiding nature of a market guides free markets to maximise profit and consumers' welfare without government intervention. If, for example, the demand for a product increases, it puts upwards pressure on its price, rationing the good to those who are willing to pay the most for it. The higher price signals a shortage of the good to producers, and, by raising the profit margin on each unit of the good sold, encourages an extension in supply. In this way, resources follow consumer demand. As long as consumers spend their limited income in such a way as to maximise utility, the most possible benefit is derived from society's scarce resources.
(then two appropriate definitions)
- Intro and 2 definitions
- proof of market failure
- a possible method of govt. intervention with pros and cons and diagram
- another method of intervention with pros and cons and diagram
- analysis of all points made so far:
- if there is enough evidence to show that something must be done
- risk of govt. failure - Hayek and other economists
- best policy? is there enough info e.g. costs of application, leave to free market?
- summary - best method
- BRING IN A NEW POINT IN THE JUDGEMENT
The problems that have risen from...... show clearly that something must be done to correct them.
Another point to consider is the risk of government failure if they do decide to intervene..........(argue how this could happen with the two types of intervention stated)............
Many economists such as Friedrich Hayek, believe that the market should be left to its own accord, because it can never be improved by an individual or the governmenr and can only worsen.
To decide on the best policy to use, if government intervention was needed, more information needs to be provided as to how much it would cost for the government to (impose the specific intervention), compared with the problems that would arise when left to the free market. According to Adam Smith's 'Invisible hand', the market should be able to correct itself without government intervention. The question is simply how long it would take and whether or not it would be more economically efficient in the long term for the government to intervene.
5 marker, 8 marker and 12 marker
- clear, succinct definition
- examples or diagram
- 2 separate points in 2 paragraphs
- first para with a point in general, but with data from the source
- 2nd para with a more specific point and data to back it up
- 2 definitions e.g. demand and supply or other relevant and what the diagram shows
- what the source tells us to answer question (2 points)
- diagram and explain the diagram relating to question (6 points)