A-Level Economics Model Answers
Evaluate the economic case for and against allowing market forces to determine food prices, without any intervention by governments. (25 marks)
Here is a question and answer from the markets and market failure section of the A-level Economics syllabus.
This question is an ‘evaluate’ 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.
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Evaluate the economic case for and against allowing market forces to determine food prices, without any intervention by governments.
(25 marks)
The question asks you to evaluate for and against the free market determining the prices of food. You will therefore need to define a few things and go into an argument where you explain why the market should determine food prices. You will then follow this with reasons why the market should not determine food prices.
Free Model Answer Guide
Possible Definitions
Market forces
The term ‘market forces’ refers to the forces of supply and demand within a free market. The forces of supply and demand help allocate scarce economic resources efficiently. The free market allocates scarce resources at the point where supply=demand, which is the point of equilibrium.
Government Intervention
Sometimes the market fails and hence scarce economic resources are misallocated. Government intervention can help correct the misallocation of resources: this helps restore a loss of social welfare.
The Argument (For and Against)
Case for allowing market forces to determine food prices
Explain the price mechanism and discuss how it works
3 functions of the price mechanism
Why the 3 functions lead to efficiency
Diagram to show price mechanism at work
Why a free market can lead to an efficient allocation of resources when compared to government provision
Case against market forces determining food prices
How might the market fail? E.g. speculative buying, hoarding, panic buying
What effects can something like panic buying have on societal welfare?
How would the free market respond to this?
Does the free market response raise or decrease welfare?
Give an example of government price intervention
What is the benefit of such intervention?
What is the downside of this intervention?
Conclusion
Should the free market determine prices of food?
Weigh up your responses to the above and evaluate
Diagrams you could use
An applied demand/supply diagram
Price mechanism illustrated on a demand/supply diagram
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