Microeconomic Objectives and Policies

H2 Economics - syllabus 9570, 2026

Original teaching notes

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Identify why a market misallocates resources, explain the welfare loss and choose a policy that addresses the cause.

• Efficiency and equity are different

  Ask whether resources are well allocated and who can access essentials.

• Who bears the cost outside the transaction?

  Name the third party and the unpriced harm.

• Who receives a benefit outside the transaction?

  Separate the buyer's own gain from the spillover.

• Which part of the diagram is welfare loss?

  Count the lost net benefit over the wrong quantity interval.

• Why might a useful public good not be funded?

  Non-payers can benefit, so voluntary payment is difficult to secure.

• What if buyers misjudge their own costs or benefits?

  Information failure does not need a third-party spillover.

• When does a tax or subsidy correct the problem?

  The payment must match the missing incentive.

• How can trading permits reduce control costs?

  Keep the cap fixed while allowing cheaper reductions.

• Who funds and who delivers the service?

  Public funding and public production are separate decisions.

• Choose a rule or information policy for the actual cause

  Explain what changes in behaviour and why.

• Would the policy improve the outcome enough?

  Compare the gain with costs and a feasible alternative.

• Hidden information before and after a transaction

  Distinguish who joins from what people do afterwards.

• Why do resources fail to move to new uses?

  A price signal is not enough if workers or equipment cannot move.

• When can market power restrict useful output?

  Compare the marginal value of extra output with its cost.

• Can presentation change a decision?

  Name the bias without assuming every person responds the same way.

• Can intervention make allocation worse?

  Compare the policy with the relevant alternative, not a perfect world.