TASK- Starter: Gimme 3- Unit 8 recap:

1. How do you measure poverty in a society? If this XXXX

ratio/coefficient is ‘0’ what does that tell us about that society/
country? If the ratio is 1 (or 100%) what does this tell us about
society? Extension: A* station: can you link this to government
intervention? HINT: use KT: negative income tax/ progressive tax.

2. Complete this analysis for absence of government

intervention: In a market economy, an individual’s ability to
consume goods and services depends upon their
_________________ and an inequitable distribution is likely
to lead to a ___________ and hence ________ will occur

1. A* station: The provision of information ALWAYS affects the

consumption of demerit goods.
To what extent do you agree? (HID factors)
Starter- Gimme 3- Unit 8 recap: model answers

1. A Gini coefficient of 0 reflects perfect equality, where all income or wealth values are the same, while
a Gini coefficient of 1 (or 100%) reflects maximal inequality in society. For example, if everyone has
the same income, the Gini coefficient will be 0. In contrast, if only one person has all the income or
consumption and all others have none, the Gini coefficient will be 1. A* station: The higher the Gini
coefficient, the less likely a society is to have experienced government intervention to correct this
inequality, though negative income tax systems and/or progressive tax structures, as a means to
redistribute wealth, gained through income.

2. In a market economy, an individual’s ability to consume goods and services depends upon
their income and wealth and an inequitable distribution of income and wealth is likely to lead
to a misallocation of resources and hence market failure will occur.

3. EXT: A* station: The the provision of information ALWAYS affects the consumption of demerit goods. To
what extent do you agree? (HID factors ‘however it depends… see next slide! This would form the basis of
a 20 mark question in Paper 4 Section B)
ANSWER: The provision of information can indeed affect the consumption of demerit goods, but the extent to which it does so depends on several factors.
These factors can be categorised under HID: Habits, Incentives, and Determinants of consumption. Let's explore these in more detail:

1. Habits (H): Addiction: For many demerit goods like tobacco, alcohol, or fast food, consumers often develop strong habits or addictions. Even when
provided with information about the harmful effects of these goods, individuals may find it difficult to change their behaviour due to the addictive nature of the
product. Social Norms: Habits are also influenced by social norms. In societies where the consumption of certain demerit goods is normalised, even clear
and widespread information about their harms may have a limited effect on reducing consumption.

2. Incentives (I): Economic Incentives: Information alone may not be sufficient if the economic incentives (like prices, taxes, and availability) encourage
the consumption of demerit goods. For instance, if a good is cheap and easily accessible, even informed consumers might continue to consume it.
Behavioural Incentives: The effectiveness of information can also be influenced by behavioural economics principles like hyperbolic discounting, where
individuals prefer immediate gratification (consuming the demerit good) over long-term benefits (health improvements). In such cases, information needs to
be coupled with incentives like taxes, subsidies for healthier alternatives, or nudges that make healthier choices easier.

3. Determinants (D) of Consumption: Psychological Determinants: Cognitive biases can affect how individuals process information. For example, the
optimism bias leads people to believe they are less likely to be harmed by demerit goods compared to others, reducing the impact of information. Cultural
Determinants: Cultural factors play a role in how information is received and acted upon. In some cultures, traditional or religious beliefs might override the
influence of information on the consumption of certain demerit goods. Socioeconomic Determinants: Education levels, income, and social class can affect
how individuals understand and act on information. Those with lower levels of education may not fully grasp the risks communicated, or may feel powerless
to change their behaviour due to economic constraints.

Conclusion: While the provision of information does have an impact on the consumption of demerit goods, its effectiveness is not absolute. The extent of its
impact is contingent on factors such as existing habits, the nature and strength of incentives, and the broader determinants of consumption behaviour. To
maximise the effect of information, it often needs to be part of a broader strategy that includes regulatory measures, economic incentives, and efforts to shift
social norms and habits. Therefore, I would partially agree with the statement, recognising that information is a necessary but not always sufficient tool for
reducing the consumption of demerit goods.
 Mr. Balen,
Mayor of
Mock Preparation- Exam Technique Kathmandu
Stretch and challenge:
However…It…Depends on…(HID!) factors
Paper 4: Section B focus, with Unit 8 content
Unit 8: Government Microeconomic Intervention

For your end of Unit 8 key assessment,

YOU will apply your essay to Nepal and
a country of your choice. Application is
not an exam skill in CIE Economics, but
the chief examiner explains that there is
a strong positive correlation between
students who use real life examples
and those that attain top grades, in
economics.
 Choose 1 action/ policy to combat the consumption of the demerit good of vape’s in Nepal.
What would your (Nepal Government) actions DEPEND on? DISCO:
Overall eval: directly answer the Q..
DISCO: DECISION/ It depends/ St vs Lt?/ Cost (Opportunity or $?).

Make a DECISION based on what the essay question is asking you. In this
D instance- you have decided that the BEST policy to combat vaping is policy X

It depends: What is your ‘It depends on’ point? Eg. ‘However, the success
I of implementing tighter regulations eg.______ depends on _____
The concept of TIME: St VS Lt: Is your point only relevant in the short term/long term? Eg. will
S the detriments of vaping be more apparent over time when more longitudinal studies and thus,
provision of information, occur?

Would your point depend on Cost? Can the government afford to implement
C change (using tax revenue?!)? Societal cost? Opportunity cost?
Other factors that you can think of… this could include the concepts of:
O -
-
market structure- does the government control the factors of production?
Regulations- is Vaping elastic? What impact on tax revenues? What impact on usage?
 STARTER ACTIVITY: KEY ASSESSMENT LESSON:
40 MIN IN EXAM CONDITIONS:
How would you plan this essay-
JUST using EXAM SKILLS! NO CONTENT!

‘With the help of a diagram, assess the view that government intervention can
be used successfully to correct market failure caused by positive externalities
(20)

1. What do you start essays with?

2. What do you then include and label/ explain (where possible)
3. What is your paragraph structure? (PEELED?- what does this mean?)
4. Where in PEELED do you add BLT? What does this mean? What exam skill is this?
5. Where in PEELED would you add HID factors? What does this mean and what exam skill is this?
6. Why do we HID throughout- after every paragraph? And not JUST AT THE END?
7. WHAT DOES DISCO STAND FOR AND WHEN DO WE DO IT?
 ‘With the help of a diagram, assess the view that government intervention can be used
successfully to correct market failure caused by positive externalities

P - Point: Start by making a clear and concise point or argument that directly
answers the question or addresses the topic.
E - Evidence: Provide specific evidence to support your point, such as a quote,
statistic, example, or reference.
E - Explanation: Explain how the evidence supports your point, showing your
understanding and analysis.
L - Link: Link your explanation back to the question or the overall argument,
demonstrating relevance.
E - Evaluate: Evaluate the significance or reliability of the evidence, considering
different perspectives, implications, or limitations.
D - Develop: Extend your argument further by discussing additional insights,
alternative interpretations, or deeper analysis.
 ‘Market failure can always be corrected through government
intervention. To what extent do you agree with this statement? (20)’

OR: With the help of a diagram, assess the view that government
intervention can be used successfully to correct market failure
caused by positive externalities (20)
Mark scheme for Q2: HERE

Complete this essay and this will be your unit 8 assessment

40 minutes in exam conditions