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Advantages of a market system
Causes of market failure:
This requires a balanced response in which both the advantages and disadvantages of government interventions must be discussed. One sided answer will lead to maximum half the marks.
Advantages of government intervention:
Limitations of government intervention:
Possible explanation could include:
Broadly speaking, an explanation of how market system works on its own through the dynamics of demand and supply in the market.
A subsidy is:
a payment made to a producer, e.g. by a government to help reduce the costs of production as a result producers will want to increase supply at every given price. Consumption is therefore encouraged although this could mean supporting an inefficient producer and so distort competition.
Note:
Marks are usually allocated on the following criteria:
That axes are correctly labelled P and Q and curves are correctly labelled D and S or S and S-subsidy (1)
Show the supply curve shifts to the right (1)
Equilibrium price falls and equilibrium quantity increases (1).
Explanation of the effect of a subsidy on equilibrium price and quantity {will get upto 3 marks}
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Please note:
A brief description is required for each point in order to gain full marks. You might lose marks if only points are listed without explanation.
Definition and explanation
PED is the percentage change in the quantity demanded of a product divided by the percentage change in its price
Or
PED is the responsiveness of demand to a change in price.
Its value can range from perfectly inelastic to perfectly elastic. inelastic demand has a value of less than 1 while elastic demand has a value of more than 1 and it is usually a minus figure varies along the demand curve.
A brief explanation is required to get full marks.
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