Government Intervention | Model Answer
A-level Economics
“Evaluate the case for government provision of goods and services such as flood defence schemes or housing. (25 marks)”
Here is a question and answer from the markets and market failure section of the A-level Economics syllabus.
This question is a ‘discuss’ question - the type of question students need to practice their exam technique. In some exam boards, this is the ‘25 marker’.
I have seen so many capable students drop a few marks on these sorts of questions simply because they do not evaluate the scenario with enough scope.
Evaluate the case for government provision of goods and services such as flood defence schemes or housing. (25 marks)
The question asks you to evaluate if the provision of vital goods and services such as flood defences and housing should be left to the government. You will need to structure this properly, never forgetting to stick to the question be asked. This will then be followed by a conclusion.
THE FREE ESSAY PLAN BELOW CAN BE USED AS A GUIDE TO HELP YOU WRITE YOUR RESPONSE.
Essay Plan
Possible Definitions
Market failure
Market failure occurs when the free market mechanism fails to allocate resources efficiently. In these circumstances, the government may choose to intervene in order to restore social welfare.
Government Intervention
One way the government can intervene is by subsidisation. This is when the government makes a payment to a firm, usually in order to promote production/consumption of the good/service provided.
The Argument (For and Against)
Case for government provision of flood defences
Is it a public good? Public goods are non-excludable/non-rival
If a public good, would it be provided in the free market?
Start-up costs of such projects are extremely high
Positive externalities
Case against provision flood defences
Government inefficiency vs free market - opportunity cost of taxpayer money
What are the costs/benefits of intervention via provision - is there a net social benefit or cost?
Maintenance costs of the project
Who should pay for it and how much?
Case for provision of housing
Positive externalities - merit good
Supply inelasticities of housing supply
Prices for first-time buyers - deposits are too high and mortgages too long
Redistribution of income between rich and poor
Government is not incentivised by profit - free market builders may cut costs to make more profit - safety concerns
Case against government provision of housing
Will the government build houses efficiently enough?
Absence of the price mechanism
Government could just hire private firms to do the job to certain standards
Conclusion
Should the government fully provide vital goods/services such as flood defences and housing?
Weigh up your responses to the above and evaluate
Diagrams you could use
Externality diagrams related to flood defences and housing
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