Cambridge International as and a level Economics Ebook

1 a
Explain why traffi
c congestion is a classic 
example of market failure.
b 
How in theory should a government deal with 
the problem of traffi
c congestion?
2
Suppose you have been invited to make a 
presentation to politicians and planners on how 
the experience of Singapore in dealing with its 
congestion problems might assist your country 
in reducing its urban transport problems. Brief ly 
draft this presentation under the following 
headings:
■
the main benefi ts of road pricing in Singapore
■
the data you would need to be able to measure 
these benefi ts
■
why the experience of Singapore may not be 
entirely relevant for your own country.
197
Chapter 8: Government microeconomic intervention

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Th
us the equilibrium aft er the subsidy is at point H, 
which is where 
D
1
crosses 
S
2
and the optimal amount of 
goods 
Q
2
is sold by the market at the lower price of 
P
3
. 
Th
is is clearly more benefi cial for consumers.
In the case of education, legislation is used in some 
countries to make state-funded education compulsory 
up to a certain age. Sadly, this is oft en not the case in 
many poorer countries. Information is also provided by 
governments to persuade consumers to buy more goods 
that produce positive externalities. In most developed 
economies, people are urged to eat more fruit and 
vegetables to reduce the possible risk of health problems 
such as diabetes and obesity.
Regulation and equity: 
So far in this chapter it has 
been shown that eff ective government intervention can 
produce not only a more eff icient allocation of resources 
but can, by correcting market failure, also result in greater 
social equality and equity.
KEY CONCEPT LINK
TOP TIP
It is sometimes diff icult to distinguish between a 
production and consumption externality as an action 
may involve both.