Quick questions on Market failure and government intervention (QCE Economics Unit 2)

Market failure occurs when the competitive market fails to allocate resources efficiently. The market outcome differs from the socially optimal outcome.

Markets under-supply public goods because non-payers free-ride. Government provides them, funded by tax.

A tax on a good with a negative externality. The tax raises the price to consumers, reducing consumption toward the socially optimal level (Pigouvian taxation).

Government intervention is justified only when the cost of intervention is less than the cost of market failure. Costs include:

Safeguard Mechanism reform (2023). Caps emissions from Australia's 215 largest industrial emitters, tightening 4.9 percent per year toward 2030.

Intervention is most justified when:

Defence, public broadcasting (ABC, SBS), lighthouses, BOM weather services, ARC-funded basic research.

Demand and private supply, with social marginal cost above private marginal cost. Market equilibrium produces more than the socially optimal level. Deadweight loss = the triangle between the SMC and PMC curves over the over-production.

Caps emissions from Australia's 215 largest industrial emitters, tightening 4.9 percent per year toward 2030.

$22.7 billion industrial policy package for green metals, hydrogen, batteries, critical minerals.

Following the ACCC inquiry, mandatory unit pricing, stronger Food and Grocery Code.

Demand-side reform of disability services; ongoing scope and cost adjustments.

300,000 free places under the National Skills Agreement, addressing the positive externality of skills training.

A public good is technically non-rival and non-excludable. Many things provided by government (school education, healthcare) are not technically public goods, although they may have positive externalities.

Markers reward responses that show the social marginal cost curve above the private marginal cost curve, with the deadweight loss triangle labelled.