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

IB Economics Commentary on Market Failure

Extracts from this document...

Introduction

Commentary 3 This article from Newsaday.com, "proposed cigarette tax increase rile smokers in NY" is about cigarette smoking in New York as a cause to market failure. The government tried to tackle the problem of market failure through the implementation of an increase in indirect tax (a tax imposed on spending) In this article, I will evaluate whether the government intervention was effective with its method of eliminating market failure. Market Failure is the failure of an unregulated market system to achieve allocative efficiency (the situation when no resources are wasted) or social goals. In this article there are two causes to market failure: the oversupply of demerit goods (a good which the political process had decided is socially undesirable) and the negative externality of consumption (cost of consumption by society but not the consumers themselves). ...read more.

Middle

is relatively inelastic, as smoking has an inelastic demand and MPB = MSB , because there is no benefit involved in smoking. However Marginal Private Cost (MPC) (the marginal cost directly incurred by the producer of the good/service) shifts out as there is an externality that affects the third party, which will be covered through the implementation of a tax. In a free market, people would ignore the external costs to others, therefore the output would be at Q2 where (demand = supply), however this would be socially inefficient as social cost > social benefit. To account for this loss, a tax (S2) is imposed. The amount of tax is P3-P1. The red triangle is the area of dead weight welfare loss. It indicates the area of overconsumption (where MSC is greater than MPC). ...read more.

Conclusion

Furthermore, the main reason for a tax is to achieve social efficiency and if a tax is the method, then so be it. In reality, the awareness of the dangers of smoking have been around for a long time, so it can be inevitably said that people are making informed decisions for when they choose to smoke. However the social cost of smoking is larger with the problems of passive smoking and environmental concerns. Therefore It is absolutely necessary to try and reduce the number of smoker, for the welfare of others and to protect our planet. But, there are alternative methods the government could use which could reduce the number of smokers or decrease the pollution index, but at the same time not defect any other part of the country's economy such as crime rate. Other methods could include regulation of minimum age for smoking, the prohibition of smoking in certain areas. ...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. Economics Commentary- Market Failure. In the article, the negative externality was the spilling ...

    These weak institutional frameworks are a problem for the developing countries because they are barriers to economic growth and development, and some companies fully exploit them.

  2. Effects of smoking on Society

    Long-term smokers have half the risk of Parkinson's disease than do nonsmokers. (Vastag) The study was conducted on 12,000 people, and showed that those who smoked the most (had been smoking at least a pack a day for 60 years) had the lowest risk of contracting the illness (Vastag).

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

    If the government proposal is passed, the local tobacco tax duty will be only 38 percent of the retail cost, while in Hong Kong it is closer to 70 percent.?The chairman of Hong Kong anti-tobacco pressure group Clear the Air shares Chan's view.

  2. Economics IA Commentary - Market Failure. Household energy bills will increase by 50 ...

    In the coming years, as world population rises, so will energy consumption, carbon emissions and its negative effects; these taxes will follow suit. In the short run, the tax increases might not be very large and hence would not cause a great decrease in quantity demanded.

  1. Market Failure notes

    Because of this, they are not producing at the socially efficient level of output. Any imperfect market will fail to equate MSC and MSB. When community surplus falls from the maximum, we say there has been a welfare loss. This is because the units Q1-QE are not produced, even though

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

    On the contrary, some economists insist that population growth was not definitely associated with slower economic growth. It had been indicated that a moderate population growth would produce considerably better economic performance in the long run than a slower growing population would in the short run.

  1. Old IB Questions

    that they can devote to both R&D (research and development) and advertising. Whereas monopolistically competitive firms also engage in non-price competition, the resources at their disposal for these purposes are generally not as significant. * The development of new products provides firms with a competitive edge; they increase their monopoly

  2. Explain the Main Sources of Market Failure that Can Occur in the Market System ...

    But this essay will focus on other three sources of market failure; externalities, missing market and lack of competition. First, externalities make a difference between private and social costs and benefits. Externalities occur when a third person who has nothing to do with the decision to practice is affected by cost or benefit.

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