DP Economics

Test builder »

Question 23M.1.SL.TZ1.1a

Select a Test
Date May 2023 Marks available [Maximum mark: 10] Reference code 23M.1.SL.TZ1.1a
Level SL Paper 1 Time zone TZ1
Command term Explain Question number a Adapted from N/A
a.
[Maximum mark: 10]
23M.1.SL.TZ1.1a
(a)

Explain why, in the case of healthcare and education, positive externalities might cause market failure.

[10]

Markscheme

Refer to Paper 1 markbands for May 2022 forward, available under the "My tests" tab > supplemental materials.

Answers may include:

  • Terminology: positive externalities, market failure.
  • Explanation: of healthcare and education as merit goods which generate external benefits, as well as private benefits, and whose consumption is therefore likely to be less than the socially optimal level if left to the free market to provide; explanation of positive externalities in the case of healthcare, eg control the spread of contagious diseases and healthy workers being more productive; and an explanation of the positive externalities in the case of education, eg the positive relationship between education, productivity, employment, innovation and economic growth.
  • Diagram: positive externalities of consumption diagram showing MSB above MPB, MSB not equalling MSC and welfare loss.

A maximum of [6] should be awarded if only one of healthcare or education is explained and developed.

Assessment Criteria

Part (a) 10 marks

Examiners report

This was the most popular question and the one for which candidates were well prepared, in general. Most candidates recognized health care and education as merit goods but were unable to fully explain the external benefits of these two goods. There were proper diagrams illustrating the positive externalities, but the welfare loss was often not correctly labelled. Some candidates incorrectly explained these two merit goods as producing positive externalities of production. Many candidates understood why positive externalities cause market failure and could explain it using the diagram, but it was evident that market failure is a concept that is not understood by all candidates.

Syllabus sections