Cigarettes are demerit goods which cause negative externalities. B

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COMMENTARY COVERSHEET

Economics commentary number:      SL Number 4              

Title of extract:             K.C. to vote on smoke-free law              

Source of extract: 

     

Date of extract:                  Monday, November 15, 2004                   

Word count:            727              words

Date the commentary was written:         22 Dec 2004            

Sections of the syllabus to which the commentary relates:     Section 2    

Candidate name:           Chen Xi                                    

Candidate number:                                   

Commentary Number 4

A market represents the private forces of demand and supply. Consumers aim to consume goods and services with lower prices and greater quantities while producers want to maximize their profits. A market diagram uses demand and supply curves to show the relationship between market demand and supply. These demand and supply curves are labeled as “private demand” and “private supply”, that is, the private benefits and the private costs. But those private activities always affect others, both positively and negatively. Those positive and negative effects are not represented in the market model; they are external to the market, known as externalities.

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There are two kinds of externalities: positive externalities and negative externalities. In the extract, cigarettes are negative externality, which means they have bad effects on others and those effects are not paid by the producers. For example, when people smoke, especially in public places, e.g. restaurants and department stores, they pollute the air rounded and threaten others’ health. No one pays for the bad feelings caused by smokers and cigarettes. In this way, “market failure” exists. If the external costs could be measured and valued a new supply curve could be drown to present this. (see figure below)

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The structure of this essay is strong. As mentioned earlier, the progression from knowledge to analysis and then evaluation makes it easy for the examiner to allocate marks. It also makes for a more convincing argument, as it shows you understand the concepts and why they are important in determining which policies are more effective in correcting market failure. There are a few slips in spelling such as "drown" instead of "drawn" which could easily be fixed with a proof read.

The analysis in this essay is strong. I liked the introduction, incorporating ideas about market forces. This shows a solid understanding of how market forces work, allowing the groundwork to analyse why market failure occurs. If I was doing this essay, I would've mentioned how demand and supply determine price and quantity at equilibrium, as this is not explicitly explained here. The diagrams included are strong, showing clear understanding that a demerit good should cause a left shift in supply due to the external costs. What I particularly like is the explanation of the diagram, for example saying "The private supply curve shifts to left. When the supply curve shifts from SMPC to SMSC, the market prices increase from PP to PS and the quantity traded is reduced from QP to QS". This is an easy way to pick up marks, as it shows an understanding of the concept and the skills to not only draw a diagram, but to explain the changes. Technical concepts are explored, such as internalising the negative externality. Using such jargon will gain credit. I liked how there was a discussion of taxation and regulation of the cigarette market, making a justified judgement to which method is more viable. It is nice to see ideas drawn upon which aren't necessarily economical, mentioning the difficulty of giving up smoking.

This essay engages well with the question. I liked how there is a clear progression from showing knowledge and understanding of markets, then onto how they can fail, and then some analysis and evaluation of which policies are most effective to correct the market failure. It is crucial to show this progression, as this is how markers will allocate marks. Without analysis you cannot gain marks for evaluation, so it was good to see numerous diagrams showing changes and shifts.