Question 22N.1.SL.TZ0.1
| Date | November 2022 | Marks available | [Maximum mark: 25] | Reference code | 22N.1.SL.TZ0.1 |
| Level | SL | Paper | 1 | Time zone | TZ0 |
| Command term | Discuss, Explain | Question number | 1 | Adapted from | N/A |
Explain two forms of government intervention in markets.
[10]
Marks should be allocated according to the paper 1 markbands for May 2022 forward, part A.
Answers may include:
- Terminology: government intervention, markets.
- Theory: explanation of any two of the following forms of government intervention: price ceilings (maximum prices), price floors (minimum prices), indirect taxes, subsidies, direct provision of services, command and control regulation and/or legislation. An import tariff intervention and related diagram is equally rewarded.
- Diagram: showing how governments intervene in markets (price ceilings, price floors, indirect taxes and/or subsidies).
A maximum of [6] should be awarded if only one form of government intervention is explained.
This question was done well by the majority of students. Responses covered maximum and minimum prices along with taxes and subsidies. Good answers used effective diagrams with clear explanations that showed a pleasing level of understanding of the microeconomic theory associated with government intervention in markets.
Using real-world examples, discuss the view that governments should intervene if markets fail to provide public goods.
[15]
Marks should be allocated according to the paper 1 markbands for May 2022 forward, part B.
Answers may include:
- Terminology: public goods, market failure.
- Theory: explanation of the two characteristics of public goods (non-rivalrous, non-excludable), the free rider problem, why the market fails and how governments can intervene by directly providing public goods or by contracting out to the private sector.
- Diagram: not needed for this question.
- Synthesis (discuss): which public goods should be provided, how much should be provided, benefits derived from government provision vs. private sector provision, costs of provision.
- Example(s): real-world examples of where governments have intervened or have not intervened in response to public goods.
N.B. It should be noted that theory and diagrams that have already been given in part (a), and then referred to in part (b), should be rewarded.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
This question caused difficulties for a significant number of students. The main cause of the problem faced by candidates was confusion on what is and what is not a public good. Some students evaluated government intervention in the market for healthcare and education, which are not public goods. High-achieving responses focused on the principles of the non-rivalrous and non-exclusiveness of public goods and why governments need to intervene to provide them. Strongest answers fully discussed the advantages and disadvantages of government intervention in public goods, such as national defence, flood barriers and streetlighting and supported their discussion with effective real-world examples.