• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Economics commentary - China set to introduce new rules on smoking in public

Extracts from this document...


INTERNAL ASSESSEMENT Commentary no. 1 ECONOMICS SL Name: Abdelrahman Lofty Mosalam Class: DP1 Session: May 2012 China set to introduce new rules on smoking in public China's economy is known as one of the strongest economies in the world, as they achieved a very high recorded rate of growth domestic product in 2010 with 10.3%, as well as china is one of the main exporters worldwide, all of these are reasons why China has a powerful role in the world economy. But unfortunately this power could be in dangerous if the economy faces market failure. Market failure occurs when there is a misallocation of resources according to the price mechanism towards the social optimal way caused by the failure of the market signal function to identify the efficient and exact outcomes (Mankiw, 2011). Which consequence externalities, In our market failure case, there is something called negative externality, which means that the third party, who are neither the consumer nor the producer, they are the society, known as the marginal social (MSb/c). This good produced is harmfully or damagingly affecting the society. Therefore there is misallocation of resources. ...read more.


They can either put legislations by law to limit the quantity produced by the supplier for example for this particular good, or by banning, ban the production or consumption of a certain good that causes a negative externality, or may be by advertising to influence producers and consumers and warn. or finally by taxation, the act to put a high tax on demerit goods, which is the very known and traditional way of lowering the consumption of a good having negative externalities (Mankiw, 2011), Also the tradable permits, which could be a solution in other situations, but it may have a relation to the Chinese one, as we know the production of cigarettes is surely harming the environment so that they can use the tradable permits to minimize the supply of cigarettes. All of these are ways for the government to attempt to correct market failure by influencing both supply and demand for goods. This is exactly the situation in China, cigarettes has a negative impact generally and increasing day after day its negative effects on the society, thus the government decided to make new strict rules to ...read more.


For the reason that foreign companies come to china to produce their cigarettes because "The cost of a packet of cigarettes is significantly lower in China than in many western countries". The solution which may help the Chinese government to interfere and either to correct the market failure economically if happens or socially to help the society to maintain good health and social wellbeing (Arnold, 2007), is actually the taxation by increasing very high percentage of tax {figure B}, after putting in consideration all of the limitations, the use of taxation is the ideal solution. To conclude, we can say that the government has to keep the market under surveillance because the market is left totally free, surely will appear overproduction of goods having negative externalities as demerit goods, as cigarettes or goods that passes from steps in production that pollute the environment, causing circumstances as spreading different diseases and danger for all living organisms which leads socially to high death rate and economically on the long term to economical crisis. Therefore, government has to interfere, to limit the extent of demerit goods on the free market, to insure a safe future both economically and socially. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. IB Economics Commentary on Market Failure

    tax on cigarettes, as the revenue received will be able to go to health programs, anti-smoking campaigns etc.

  2. Extended Essay Economics

    The fear of price controls prevents a firm operating in Venezuela from operating as a traditional oligopoly. If it is thought a firm is "price gouging," it is likely the government will intervene and introduce price controls. This means that a firm in Venezuela will likely sell their goods for slightly less than the demand curve would dictate elsewhere.

  1. UK Car Scrappage Scheme. This essay will firstly display and show the effects of ...

    The demand on the market of second hand car will fall, causing a drop in prices of used cars. The diagram below will show the effect of the government's scarp scheme on second hand car market: P D1 D Q The demand curve which represents the demand on second hand

  2. Market Failure IA Commentary. This article is about the price of cigarettes in Macao ...

    As there is a free market, smokers will maximize their private utility and continue at the level where MSC=MPB. The price that is paid for each packet of cigarette with account of the social cost will cause the MSC to exceed market price.

  1. Growth and Development Problem Set - IB Economics exam questions and answers.

    So, clearly population growth does not definitely hamper the economic growth, if maintaining a moderate growth rate, it can encourage the economic growth as well. Moreover, different population policy, age structure and growth speed will eventually influence economic growth rates between countries.

  2. Macro Economics Notes

    = Calculate the GDP of the following country using each method of National income counting Expenditure Method Consumer expenditure ( C ) 400 000 Public expenditure (G) 130 000 Fixed Capital formulation (I) 70 000 Exports (X) 60 000 Imports (M)

  1. Has the Time Come to Legalize Drugs?

    In an extended interview, Fox told me that he is making his proposal because drug-related violence in Mexico has reached intolerable levels, and because the experience of other countries such as the Netherlands has shown that allowing drug sales has not significantly driven up drug consumption.

  2. The future of Eli Lilly

    Going from 55% home market sales in 1992 to 65% in 2000. So overall we have to different evolving companies, Ranbaxy being more international and Eli Lilly more local. If the sales from the Joint Venture was a part of Eli Lilly's net sales, that number would only be 0.2%

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work