Question 18M.1.SL.TZ1.2b
| Date | May 2018 | Marks available | [Maximum mark: 15] | Reference code | 18M.1.SL.TZ1.2b |
| Level | SL | Paper | 1 | Time zone | TZ1 |
| Command term | Discuss | Question number | b | Adapted from | N/A |
Discuss the view that competitive markets will always achieve allocative efficiency.
[15]
Answers may include:
- definitions of allocative efficiency, competitive market
- diagram to illustrate the principle of allocative efficiency, eg demand = supply, marginal benefit= marginal cost
- explanation that allocative efficiency occurs where market equilibrium occurs, where social (community) surplus is maximized with respect to producer and consumer surplus; marginal benefit equals marginal cost
- example(s) of competitive markets or markets where there is market failure
- synthesis or evaluation (discuss).
Discussion may include: the difference between private and social optimality; challenges to the view expressed in the question in terms of such market failures as positive and negative externalities, merit goods and demerit goods, lack of provision of public goods, lack of information.
NB If candidates go straight into an evaluation of the view without sufficient explanation of how competitive markets achieve allocative efficiency, a maximum of mid L3 should be awarded.
N.B.: It should be noted that definitions, theory, and examples that have already been given in part (a), and then referred to in part (b) should be rewarded.
Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part B.
