Clarification details
Updated December 2018. This clarification document has been updated to address issues that have arisen during moderation, and to provide clarity on the new version of this standard.
Quantity of Market situations and implications
Version 3 of this standard requires students to demonstrate understanding of at least two interventions that address one type of market failure. For example, addressing a consumption or production externality, a public good, or imperfect information.
Alternatively, students could address one inequitable market situation, like inequitable income and/or wealth distribution or the under-provision of a merit good or service.
Version 3 requires students to consider both the equity and efficiency of the government interventions, explaining these as implications for society, using an economic model.
Identifying an appropriate economic model
The standard requires students to examine a market situation, so a model that addresses and illustrates a whole market situation rather than individual consumption is needed. For example, the Social Marginal Cost/Social Marginal Benefit (SMC/SMB) model using adapted Supply (S) and Demand (D) curves is appropriate for illustrating externalities, and the Lorenz Curve model for illustrating inequitable income and/or wealth distribution.
Ascertaining what type of good or service is being provided by the market is one way of determining what model could be appropriate to illustrate and support explanations. A normal good or service, excludable and rivalrous, could be illustrated using S/D and SMC/SMB models, and a public good, non-excludable and non-rivalrous, like national defence or street lighting can be illustrated using the Public Goods model.
Differentiating the private and public healthcare and education markets helps with identification. For example, private healthcare or education provides normal goods/services, whereas public healthcare and education provide merit goods/services that our society deems to be beneficial.
While public healthcare can appear to share similarities with public goods, it is rivalrous due to surgery waiting lists, and access to local hospitals, doctors, specialists, medications, medical tests and technology, is expensive and so excludes many. This creates inequitable access to quality healthcare, the under-provision of a merit good/service for low-income earners, rural and semi-rural communities, for example.
Under-provision of merit goods and services
Using the Public Goods model to illustrate the efficiency and equity, or not, of collective provision and user pays fees to address the under-provision of public healthcare or education could be appropriate. However, under-provision of merit goods or services can also include inequitable access to housing, property, national walking tracks, public infrastructures, etc.