IB SL Economics commentary: Market Failure

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IB Economics: Internal Assessment Front Cover

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Candidate Number: 310187471        

Teacher: Mr. Messere

Source of Article: http://news.bbc.co.uk/2/hi/uk_news/education/8263672.stm

Title of Article: Charge Students More, Say Bosses

Date Written: February 1, 2010

Word Count: 749

Areas of Syllabus your commentary relates to: Section 3: Market Failure

Knowledge is power, and in today’s world, many equate procuring knowledge with attending university. The rates of young people in post-secondary education have increased over the years, as have the costs that come with this. Because of the perceived social benefit associated with a greater number of university graduates, the British government aims to have 50% of high school graduates continuing to university. This was done through the introduction of upper limits on tuition fees and low interest loans for students. However a recent report by the CBI suggests that this objective is no longer worthwhile and that students are the source of capital which can save British universities struggling in the current market.

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The concept of Pareto efficiency, a scenario where no improvements in the allocation of goods to benefit individuals without making others worse off, is integral to this scenario. A Pareto efficient outcome is the socially optimal; however, additional government involvement is sometimes necessary where the free market has failed. The negative impact on parties not involved in the transaction, accrued to society as a cause of only a small number of students attending university, i.e. the negative externality, to be corrected will manifest itself in stagnant growth in the standard of living and national income.

Education is usually classified ...

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