Level 3 Economics - AS91402

Market Failure Assignment–

Lessons from The Republic of Korea - A Rapidly Developing Economy.


Overview

Purpose

Market failure occurs when the price mechanism fails to work properly and so a market fails to achieve full social allocative efficiency. Market failure occurs in all countries and economies. This includes:

  • externalities
  • public goods
  • market dominance / abuse
  • inequality

This assessment requires you to:

  1. Identify and describe two current or recent examples of market failure, one for New Zealand and one for South Korea
  2. For each example of market failure, describe and explain two different ways that the respective Governments of NewZealand and South Korea intervene to resolve or minimise the market failure
  3. Evaluate each government intervention, especially with regard to equity and efficiency
  4. Make justified recommendations about how the government should intervene in this situation

inthe future

Plan

This plan is for your benefit. It does NOT form part of your grade. Your plan should contain the following:

a) What Market Failures?

Identify the two market failures that you will study in your project.

b) What Government Interventions?

For each market failure, identify two government interventions that attempt to resolve or minimise eachmarket failure.

c) Research Plan & Key Points

Provide a timeline of when you are going to do the work for this project. Identify the key dates when work is due to the teacher … and when you will have your work completed by to meet these deadlines.

Write an outline of your essay or presentation. Identify the titles and sub-titles that you plan to use. Under each subtitle identify the points or theory that you intend to refer to.

List any information or theory that you think you need to find out or clarify. Identify where you expect to find your answers.

NOTE: Using Data and Information

This standard does not specifically require you to gather data or information. However you are expected to use some relevant and current information to describe and explain the market failures and government interventions.

Due Date:

ANALYSIS

Identify and explain two current or recent examples of market failure. Use relevant information and economic theory to analyse each market failure and two government interventions to resolve or minimise the market failure.

For each example of market failure…

a) Identify and Describe the Market Failure

Identify a current or recent example of market failure in New Zealand.

You must choose two of the following four options:

  • externalities
  • public goods
  • market dominance / abuse
  • inequity / inequality

Use relevant information and economic theory (including graphs!) to describe the situation, and how it is an example of market failure. You should clearly identify:

What is the market failure?

  • what is the good or service?
  • who is affected by the market failure? how?
  • how long has this market failure occurred for?
  • what evidence do you have of the market failure?

Why is this an example of market failure?

  • is the good over-supplied or under-supplied?
  • what is the private (competitive) equilibrium output and social equilibrium output?
  • why does the price mechanism not work for this good or service?

b) Identify and Explain Two Government Interventions

Identify and describe two ways that the Government intervenes to resolve or minimise the market failure.

For each intervention, you should:

Identify and describe the Government intervention

  • what type of government intervention is it … allocation, regulation, distributive?
  • what is the intervention called?
  • who administers the intervention on behalf of the government?

Explain how the intervention works to resolve or minimise the market failure

  • what is the government intervention trying to achieve? how does it improve equity and/or efficiency?
  • use economic theory to explain how the intervention is supposed to work
  • use information to illustrate the intervention.

c) Evaluate the Government Interventions and Make Recommendations

Use the ideas of equity and efficiency to evaluate the two government interventions AND make a justified recommendation as to what the Government should do in the future to best correct the market failure. Remember to support your arguments and conclusions with graphs wherever possible.

Your evaluation should include:

How equitable is each solution?

  • is it fair?
  • does it target the right people (producers, consumers, other)?

How efficient is each solution?

  • does it result in a socially desirable level of output?
  • is there an appropriate graph to support your findings

Are there better interventions?

  • could the government use property rights to allow the market to resolve the market failure?
  • should the Government intervene or should this be left to private providers (e.g. private charities?)
  • are there other over-riding factors (e.g. human rights, public safety, and national interest)?

Justified recommendation(s) for future government policies or actions.

Should the government:

  • continue one or both intervention(s)?
  • modify one or both intervention(s)? how?
  • stop or replace one or both intervention(s)?

Why should the government follow your recommendations?

  • how will your recommendations address the market failure?
  • how will your recommendation affect or improve equity and/or efficiency?

Format

You may present your final assignment in either of the following formats:

  • Written (typed) essay … maximum word limit of 4,000 words
  • Video / podcast … a presentation recorded on videoA video or podcast will involve questions from the teacher to check your understanding.

However you choose to present your analysis, you must:

  • Give clear evidence of your understanding of the theory
  • Meet all specific criteria from the assessment schedule (based on the standard)
  • Use economic graphs and data, correctly using economic conventions
  • Provide a bibliography

Resubmission

As per the college assessment guidelines, you may resubmit work if there are minor errors that can be easily addressed.

Reassessment

Reassessment of this standard is available to all students. However students must repeat the entire

assignment using completely brand new and original market failures and government interventions.

There will also be different aspects to the questions provided by the teacher.

Bibliography

You must summarise the data that you have collected so that it can be verified. This is not specifically required to achieve the standard, however, it is needed to ensure the validity and authenticity of the information you use in your analysis.

Use the following style:

Primary Data:

Provide a ‘template’ of any questionnaires you did or surveys done – e.g. what questions you asked.

You should also provide summary information about your collection of data including … number of surveys /questionnaires, when they were done. You may also provide a brief summary of results to verify information included in your analysis.

You should specifically reference one-off interviews as follows:

Interviews:

Ms Andrea Jones interviewed on Friday 24th April, 2011

Secondary Data:

You should present your data as follows…

Articles:

Bacon, F. (1995) Developing Economic Thinking, Journal of Economic Thinking, 53(4), pages 49-50.

Books:

James, S. (2006) Market Analysis, San Francisco, Jossey-Bass Publishers

Downloaded Files:

Ministry of Economic Development (2009) “Economic Statistics 2008.pdf”, retrieved from

on 22 May 2011

Websites:

accessed on 23 May 2011