To browse Academia. Skip to main content. Log In Sign Up. Cabrera Aguilar. The cause, a combination of two factors: overprovision and price inelasticity. In the case of cigarettes, these negative benefits include pollution and smoke-related health problems.
In other words, the benefits the private sector receives from selling cigarettes outstrip those society receives. This can be seen more easily in the following graph, as the marginal private benefits curve, which corresponds to the demand of the cigarettes, is set above the marginal social benefits curve.
The initial supply curve, however, matches both private and social marginal costs. This is the reason for which there is overprovision of cigarettes. For simplicity, it is assumed that the tax equates to the negative benefits produced by the consumption of cigarettes. With cigarettes this is the most likely scenario. The reason is that this good has the particular feat of causing addiction, and as such, has a very low price elasticity of demand.
This means that the quantity demanded by consumers varies very little with respect to changes in price. This phenomenon can be seen in the following graph. So far, it has been noted how cigarettes come to be overprovided by the market, and how this overprovision is at low risk of being endangered by taxes. This obviously makes them a perfect target for governments to fish tax revenues from. Nonetheless, Jeremias Paul Jr.
These would have the effect of reducing the demand for cigarettes, shifting it from the marginal private benefits towards the marginal social benefits. Both courses of action surpass sin taxes in the sense that the price elasticity of demand is not a concern. Furthermore, legislation has the additional advantage of establishing mandatory behavior, thus eliminating the indifference that consumers might have towards advertising.
Related Papers. Healthy budgets and healthy people - The Economist.How to pick a good article for IB Econ IA commentary (Microeconomics)
By Erlet Shaqe. By Milanka Jurjevic. By Jonathan Ivita. The Economics of Excise Taxation. By Sijbren Cnossen. Download pdf. Remember me on this computer. Enter the email address you signed up with and we'll email you a reset link. Need an account? Click here to sign up.This article sets out a seven-step process that you can use to make writing your IA that little bit easier.
The article that we will analyse in this example can be found here. Jenny is our lead IB Economics tutor. Having taught the course for many years and worked as an examiner for the IBDP, she really knows what she is talking about! When she isn't tutoring, she loves exploring her native Berlin. Your email address will not be published. How to get full marks on source questions in History A Level: 1.
Using the content of the source C grade. Tutor applications Tutor login. International Baccalaureate IB. Jenny Owl Tutor. January 15th, Step 2 Highlight the relevant text for your application Step 3 Outline key terms to be defined. She said a plastic bag ban would help reinforce that message in the community.
It would also help clean things up. He often goes hunting for rabbits along the road. Bags and plastic foam clamshell boxes dot the landscape. He said most retailers have been receptive to the change. But those are expensive, and customers would have to pay for them. This summer the store handed out reusable bags hoping to target those customers.
They were a hit. More about Jenny Jenny qualified as a teacher in Economics inand now works as a tutor with Owl Tutors. View Jenny's Profile. More posts by Jenny. If you enjoyed this post, you may enjoy the following:. March 17, at am. Leave a Reply Cancel reply Your email address will not be published.To browse Academia. Skip to main content.
Log In Sign Up. Microeconomics IA. Riaz Murad. Market failure is a concept within economic theory describing when the allocation of goods and services by a free market is not efficient. Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient — that can be improved upon from the societal point-of-view.
In this case, alcohol is a demerit good, which is a good or services whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on the consumers themselves. It is a market failure because the Marginal Social Cost is greater than the Marginal Social Benefit, because the consumption of alcohol leads to social costs, such as violence and vandalism, and since there actually aren't any social benefits of consumption of alcohol, the cost is greater than the benefit.
However the negative externality is being ignored and thus there is an over consumption of the alcohol at Q1. The effect of the indirect taxation on alcohol will lead to increases in the cost of the producers, which is knows as Marginal Private Cost MPC. Potentially, the tax can lead to the elimination of the welfare loss, however this is only possible if the tax is equivalent to the negative externality, which would mean that the market would achieve a new equilibrium, however, prices of the alcohol would be higher.
This is shown on the diagram on the right. By putting taxes on the production of goods that cause negative consumption externalities, government can reduce the supply. Alcohol is a habit forming good. A habit forming good is a good that is addictive which leads to consumers continuing consumption despite changes in price. PED is the responsiveness of of change in prices to change in quantity demanded, and a low PED means that when prices are increased dramatically, the decrease in quantity demanded will be quite miniscule.
Since it has inelastic demand, the producers would burden most, if not all of the tax on consumers so that they can keep their prices stable and continue earning the same amount of profit. However, even though alcohol is highly inelastic, a purely inelastic good does not exist, therefore, when there is a rise in prices, the demand for alcohol will fall, even if it does so by only a small margin, which was the actual intent of the tax, since alcohol is a demerit good. The only way a welfare loss can be completely eliminated is if the tax is equivalent to the negative externality because this leads to the tax and the negative externality balancing, and creating a new equilibrium.
The realsitic condition explained here is shown on the diagram on the left. Shown above is the effect of the tax on demand.Pretty annoying right? Ok weirdly placed memes aside, here are a few things to remember when picking your article. Now, there can usually be exceptions when you and your teacher sit down to determine the suitability of your Economics IA article.
So what should you be looking for in an Economics IA Article? This means at the time of searching, the article should be no older than 6 months. This figure is three times higher than inwhen when the global financial crisis had impacted the economy. I did say that but when you actually look at that part, those are the goals of the government. So to recap. Your article should have plenty of data to cherry pick from for your analysis and evaluation.
It should be relatively new or at least not older than 6 months. These are the most important qualities your Economics IA article should have. Japan had started the negotiation expecting to offer the EU a version of the…But they found the Europeans were much more interested in lowering tariffs on cheese, chocolate and wine than on basic agricultural crops…. Depending on what the European Commission decides, it may also need…It will take a while for the rounds of European Camembert to reach Japan.
Are you seeing a difference between the information in this article compare to the one I picked before? So to recap on this bit. For example, there may be a lot of data in there but there might not be much you can do with it. Or you might not be able to write anything of significance with it.
Wait a second Already one of us? Login here. Honestly, I don't really know how you could improve. Thanks to your course I got from a low 3 to a medium 4 in my end results, and I'm really happy about that. Your course and videos are really motivating and for once I didn't feel like dying when I was doing math, so I think you're doing a perfect job.
IB trolling as usual Ok weirdly placed memes aside, here are a few things to remember when picking your article.
According to the Bureau of Statistics, the number has increased by 18 percent to reach ,Just a sample Economics IA to give you a feel of what it entails.
They require around words in length including diagrams, labels and footnotes. UK house prices rise by 1. House prices rose for the fourth month in a row during August as the market continued to be boosted by a shortage of homes for sale, figures showed today. The average cost of a home in the UK jumped by 1.
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The annual rate at which prices are falling also continued to ease during August, narrowing to just 2. The group said prices were now 3. He said low interest rates had fed through into lower mortgage repayments for existing homeowners, making it easier for people who lost their jobs to continue to afford their home loan. As a result fewer people have been forced to sell their home as is normally the case during a recession, and this has contributed to shifting the balance of supply and demand in favour of sellers during Low interest rates have also helped make property more affordable for first-time buyers, boosting demand, despite the ongoing problems in the mortgage market.
The Council of Mortgage Lenders also reported a 26 per cent rise in mortgage lending in July to its highest level for nine months, as buyers continued to return to the market. But despite the recent pick up in housing transactions, economists have warned that the number of homes changing hands still remains well down on normal levels.
The ongoing problems in the mortgage market are also continuing to limit the number of people getting on to the housing ladder, despite some recent signs that lenders are beginning to loosen their lending criteria. As a result, it is thought any recovery in the housing market is likely to be gradual, with some commentators warning that further price falls cannot be ruled out.
The recent global economic recession has generated many problems worldwide, such as increased unemployment, lack of consumer confidence and reductions in salaries and wages. In the United Kingdom, housing prices also plummeted, but during August the average cost for a home rose by 1. This is, according to the article, mainly because of low interest rates and shortage of supply.
Low interest rates, the amount borrowers pay to lenders for the usage of the borrowed money, would result in a shift in demand, the ability and willingness to consume a commodity, to the left Figure 1, D to D 1. This is because consumers are encouraged to borrow more, which would lead to increased spending. Consequently, the equilibrium would move from A to B, resulting in an increase in price P to P 1.
Furthermore, low interest rates would lead to lower mortgage repayments, hence allowing homeowners, usually predicted to sell their homes during a recession, to refrain from doing so. There would be an inwards shift in supply of homes Figure 2, S to S 1the ability and willingness to provide a commodity, as fewer owners choose to sell their houses, changing the equilibrium from B to C; the price would increase from P 1 to P 2.This article discusses the government intervention taxation policy on e-cigarettes attempting to correct the market failure of American youth vaping.
E-cigarettes are a negative externality of consumption and a demerit good which is undesirable for society, but still over-consumed. Taxation aims at internalising the external costs of nicotine addiction in youth and health hazards. The demand curves MSB and MPB are relatively inelastic as e-cigarettes become a necessity for people with nicotine addiction. There is also a lack of direct substitutes as indirect tobacco-substitutes come with more health hazards than e-cigarettes, causing consumers to be less price sensitive.
Following the forces of demand and supply of self-interested consumers and produces, the market will end up producing where MPB equals marginal private cost MPC.
This results in an over-allocation of resourcescausing overproduction of e-cigarettes beyond the socially optimal amount at Q so and at a higher price than socially optimal at P so. This results in welfare loss indicated by the shaded area due to allocative inefficiency.
The absolute value of the percentage tax increases as price increases. This raises costs of production of firms, shifting the original S curve upwards to S 1.
This brings the market closer to allocative efficiency. However, the success of the policy is limited as the negative externality is only fully internalised with perfect regulation that will remove welfare loss entirely. Governments may either move closer to social efficiency or overcompensate. Thus deadweight loss still exists as shown by the shaded area. Taxation brought the market closer to social efficiency but failed to fully correct market failure.
Taxation policy has advantages and disadvantages.
Internal Assessment Sample – Microeconomics
Producer revenue fallsdiscouraging firms from entering the market, reducing market supply of the demerit good. The disadvantage of inelastic demand is that while government revenue is maximised, consumer behaviour is difficult to change as addicts have a high degree of necessity for e-cigarettes.
Thus price increase will not be that effective in reducing the quantity consumed. Overtime, parallel markets can form where e-cigarettes are sold for lower prices as consumers shift to illegal substitutes which are unregulated and potentially harmful due to poor manufacturing.
This increases crime rates through illegal shipments and results in revenue loss for the government through tax evasion. It potentially causes greater market failure as the government has to spend money regulating black markets.
Consumers may also turn to tobacco substitutes which arguably have a larger negative externality than e-cigarettes.
Given that taxation alone is unlikely to correct market failure, it should be used in conjunction with other non-price policies. Governments can fund negative advertising through campaigns to educate youth about the risks and dangers of consuming e-cigarettes, and enforce regulations mandating health warnings on e-cigarette packaging.
To conclude, taxation is an effective policy to correct negative externality of consumption of e-cigarettes, but should be implemented in conjunction with other non-price policies to ensure that the effects are long-term.
Counter-intuitively, choosing an article with less economic analysis is sometimes advisable. Avoid just choosing random articles on Financial Times or The Economist as if the analysis is already present in the article then your commentary might seem shallow. Add in a key and axis labels. For example: Bold key terms within your commentary to show your grasp of economic terms If the article you have chosen is relatively long like multiple pageshighlight the important sections that you want the examiner to focus on.
Now, do I have to manage an economics internal assessment IA with three commentaries to graduate? Oh my god, how am I going to survive the IB?! In all honestly, Economies IA may come out a little intimidating but once you decipher them, they are one of the most interesting commentaries that you will write in your life. Hereafter, you will read about:. Your IB Economics commentaries should be based on all 3 parts of your economics coursework, i. Micro, Macro or International Trade.
A dedicated commentary needs to be written for each part. This means that you should not start your Microeconomic commentary and take a detour to International Trade. The word count for your IB Economics commentary is words, which excludes factors such as diagrams, citations, contents page, acknowledgements and other calculations including formulas. You will have to focus more on developing content and analysing your chosen article.
I will elaborate on the importance of diagrams later on in this blog! They are only allowed to help you once! So, when you are submitting your first draft, please make sure that you have followed all the guidelines specified by the IB. Do note that our Economics commentary is going to be marked by your teacher at school.
Step 1 :. Choosing the right article:. Finding the news article for your commentary is the first most important step. Websites like Google News can help you find an article that suits your interests like duh! It is considered best practice to keep reading the newspaper right from the beginning of your course. This will help you distinguish an appropriate article when its time to write you commentary. The research article must be recent aim for the current year and published by a mainstream publisher eg The Sydney Morning Herald.
Make sure to maintain your bibliography right from the beginning. Step 2 :. Do not waste your words with an irrelevant introduction. Note that you only need to define the important key terms and not all the terms. The examiners are not looking for the definitions; they already have an adequate amount of knowledge in the field of economics.
When you take the definitions from any sources, including textbooks, do not forget to credit the sources. Also, avoid using direct quotes from the article in your commentary.
You should limit the number of words in your introduction to only and save the rest of your word count for analysing and evaluating. Start off by explaining the case of your article and what is going to be analysed in the essay.
Picking The Perfect Economics IA Article
Make sure you talk in economic terms. This will surely help you as terminology is a part of your criteria. Your job is to show analytical thinking when it comes to economics. For example, if you are writing your microeconomics commentary and your news is about government banning alcohol, you should be able to deduce it's economical impact.
It is best if your assumptions are backed up evidence. In this particular example, you can talk about a similar scenario in Pakistan.