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Date May 2021 Marks available 10 Reference code 21M.1.SL.TZ2.2
Level Standard level Paper Paper 1 Time zone Time zone 2
Command term Explain Question number 2 Adapted from N/A

Question

Explain the concept of positive externalities of consumption.

[10]
a.

Discuss the view that tradable permits are more effective than taxes in reducing pollution.

[15]
b.

Markscheme

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

a.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.

Answers may include:

Discussion may include: The advantage of tradeable permits over taxation is they create an incentive for firms to develop systems to reduce pollution and taxes just penalize all producers in a market and add to costs and the final selling price to households. The weakness of tradeable permits is the system is complicated to set up and administer and taxes are easier for a government to use.

Award a maximum of [9] if only tradeable permits or only tax is addressed.

b.

Examiners report

There were plenty of good answers to this question. Effective responses showed a clear understanding of the positive externalities of consumption, using examples from areas such as healthcare and education. Responses were generally well illustrated by using cost/benefit diagrams to show the associated market failure. The strongest answers localised their examples to specific situations with many effective points made about the positive externalities of vaccines. 

a.

Students generally had a good understanding of how tradeable permits and taxes can be used as policy options to reduce pollution. It was good to see a clear understanding of the market failure associated with pollution and how tradable permits and taxes can be used to deal with external costs associated with, for example, electricity production. If there was a weakness, it was probably the explanation of tradable permits, although this is quite a difficult policy to explain. The answers on the use of taxes to reduce pollution was generally very strong. Students were generally good at evaluating the respective policies by, for example, considering the difficulties for governments of judging the level of intervention needed to achieve a socially efficient level of output. 

b.

Syllabus sections

Last exams 2021 » Section 1: Microeconomics » 1.4 Market failure » Types of market failure » Positive externalities of production and consumption
First exams 2022 » Unit 2: Microeconomics » 2.8 Market failure—externalities and common pool or common access resources » 2.8.1 Socially optimum output
Last exams 2021 » Section 1: Microeconomics » 1.4 Market failure » Types of market failure
Last exams 2021 » Section 1: Microeconomics » 1.4 Market failure
First exams 2022 » Unit 2: Microeconomics » 2.8 Market failure—externalities and common pool or common access resources
Last exams 2021 » Section 1: Microeconomics
First exams 2022 » Unit 2: Microeconomics
First exams 2022
Last exams 2021

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