2020 H2 Economics Paper 2 Essay 1: Suggested Answers
How to use these essay answers. The responses below, including the part (a) answer, are structured guides to the requirements of the question, the content, analysis and evaluation a strong answer must cover, rather than full essay prose with a written introduction and conclusion. Use them to see what to include and how to build the argument, then write it up in your own continuous prose, adding your own introduction and conclusion.
This essay explains how pollution from carbon emissions and discarded plastics leads to market failure through negative externalities, then asks the extent to which government policy measures are likely to address this market failure.
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Explain how pollution leads to market failure.
Market failure occurs when the free market or price mechanism fails to allocate resources efficiently. Negative externalities are costs imposed on third parties who are not directly involved in the production or consumption of a good, and pollution is a leading example.
Carbon emissions as a negative production externality. Firms consider their marginal private costs, such as rent, raw materials and labour, and their marginal private benefits, the revenue from sales. However, they neglect the marginal external costs (MEC) of their activities, such as the carbon emissions that contribute to air pollution and health problems like respiratory illness for those exposed. Because firms ignore the MEC, they produce where marginal private cost equals marginal private benefit at output Qm, rather than at the socially optimal output Qs where marginal social cost equals marginal social benefit. Since MSC lies above MPC by the MEC, Qm exceeds Qs, so there is overproduction. On a negative production externality diagram this is shown by the MSC curve lying above the MPC curve, with the free market output Qm to the right of the social optimum Qs.
Discarded plastics as a negative consumption externality. Consumers of single-use plastics such as bottles and bags consider only their marginal private cost, the price of the item, and their marginal private benefit, the convenience. They ignore the external costs, such as microplastics that break down and enter water bodies and the food chain, accumulating in seafood and the human bloodstream with links to inflammation and other health harms. Because consumers ignore these external costs, they consume where MPC equals MPB at Qm, above the socially optimal level Qs where MSC equals MSB. The true cost to society, the MSC, is higher than the MPC, so there is overconsumption, and the social optimum is not achieved.
In both cases the market fails to account for the wider societal costs, leading to overproduction and overconsumption respectively, and so to an inefficient allocation of resources.
Distinguish the production and the consumption externality, define MEC and the divergence of MSC from MPC, and show overproduction or overconsumption relative to the social optimum.
Discuss the extent to which government policy measures are likely to address this market failure.
- Frame the question as evaluating how far policy can correct the pollution externality, and signal that two measures will be assessed.
- Take one policy aimed at the production externality, explain its mechanism, then qualify it with the reasons it may fall short.
- Take a second, distinct policy aimed at the consumption externality, explain its mechanism, then state its limitation.
- Bring in a softer, behavioural measure and note why its effect is hard to quantify.
- Reach an evaluative conclusion on the extent, conditioning it on accurate implementation, enforcement and public receptiveness.
This part is gated. The full model answer with the worked tax and externality diagrams and the policy evaluation, with the diagrams and the full evaluation, is in the ETG TYS Answers book from SAP and is worked live in the TYS Crashcourse. ETG students also get the AI TYS coach that guides them through this exact question. Message the team to find out more.
Questions students ask
Where can I get the full worked answers to the 2020 H2 Economics paper 2 essay 1?
The full model answers, with the diagrams and the higher mark evaluation, are in the ETG TYS Answers book published by SAP and sold at Popular, and are worked live in the TYS Crashcourse. Every ETG student also gets the AI TYS coach on our learning management system, which guides you through how to tackle every essay and every case study question from the last ten years.
Are these the official 2020 A Level Economics answers?
No. SEAB sets and marks the A Level paper. These are suggested answers by Mr Eugene Toh, author of the H1 and H2 A Level Economics TYS answer keys, published by SAP and sold at Popular.
How should I use these suggested essay answers?
Treat them as a guide to the requirements of the question, the content, analysis and evaluation a strong answer must cover, not as full essay prose. Write the essay up in your own continuous prose, with your own introduction and conclusion.
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