Market Failure - Introduction

Author: Geoff Riley  Last updated: Sunday 23 September, 2012

Introduction

What is market failure?

Market failure occurs when freely-functioning markets, fail to deliver an efficient allocation of resources. The result is a loss of economic and social welfare. Market failure exists when the competitive outcome of markets is not efficient from the point of view of society as a whole. This is usually because the benefits that the free-market confers on individuals or businesses carrying out a particular activity diverge from the benefits to society as a whole.

There are many instances when the free market fails to deliver an efficient allocation of resources. Markets can fail because of:

1. Negative externalities (e.g. the effects of environmental pollution) causing the social cost of production to exceed the private cost.

2. Positive (or beneficial) externalities (e.g. the provision of education and health care) causing the social benefit of consumption to exceed the private benefit

3. Imperfect information means merit goods are under-produced while demerit goods are over-produced or over-consumed

4. The private sector in a free-markets cannot profitably supply to consumers pure public goods andquasi-public goods that are needed to meet people’s needs and wants

5. Market dominance by monopolies can lead to under-production and higher prices than would exist under conditions of competition

6. Factor immobility causes unemployment hence productive inefficiency

7. Equity (fairness) issues. Markets can generate an ‘unacceptable’ distribution of income and consequent social exclusion which the government may choose to change

Market failure results in

Productive inefficiency: Businesses are not maximising output from given factor inputs. This is a problem because the lost output from inefficient production could have been used to satisfy more wants and needs

Allocative inefficiency: Resources are misallocated and producing goods and services not wanted by consumers. This is a problem because resources can be put to a better use making products that consumers value more highly

Options for government intervention in markets

There are many ways in which intervention can take place – some examples are given below

Government Legislation and Regulation

Parliament can pass laws that for example prohibit the sale of cigarettes to children, or ban smoking in the workplace. The laws of competition policy act against examples of price-fixing cartels or other forms of anti-competitive behaviour by firms within markets. Employment laws may offer some legal protection for workers by setting maximum working hours or by providing a price-floor in the labour market through the setting of a minimum wage.

The economy operates with a huge amount of regulation. The government appointed regulators who can impose price controls in most of the main utilities such as telecommunications, electricity, gas and rail transport.

Regulation may be used to introduce fresh competition into a market – for example breaking up the existing monopoly power of a service provider. A good example of this is the attempt to introduce more competition for British Telecom and also for the postal service industry. This is known as market liberalisation.

Direct State Provision of Goods and Services

Because of privatization, the state-owned sector of the economy is now much smaller than it was twenty years ago. The main state-owned businesses in the UK are the Royal Mail which is still subject to direct price controls and Network Rail. State funding can be used to provide merit goods and services and public goods directly to the population e.g. the government pays private sector health firms to carry out operations for NHS patients to reduce waiting lists or it pays private businesses to operate prisons and maintain our road network.

Fiscal Policy Intervention

Fiscal policy can be used to alter the level of demand for different products and also the pattern of demand within the economy.

1. Indirect taxes such as changes in VAT and excise duties can be used to raise the price of demerit goods and products with negative externalities designed to increase the opportunity cost of consumption and thereby reduce consumer demand towards a socially optimal level.

2. Subsidies to consumers will lower the price of merit goods such as grants to students to reduce the internal costs of staying on in full-time education and subsidies to businesses employing unemployed workers on the New Deal programme. They are designed to boost consumption and output of products with positive externalities – a subsidy causes an increase in market supply and leads to a lower equilibrium price (see the separate revision focus article on producer subsidies).

3. Tax relief: The government may offer financial assistance such as tax credits for business investment in research and development. Or a reduction in corporation tax designed to promote investment and employment.

4. Changes to taxation and welfare payments can be used to influence the distribution of income and wealth – for example higher direct taxes on rich households or an increase in the value of welfare benefits for the poor to make the tax and benefit system more progressive.

Intervention designed to close the information gap

Often market failure results from consumers suffering from a lack of information about the costs and benefits of the products available in the market place. Government action can have a role in improving information to help consumers and producers value the ‘true’ cost and/or benefit of a good or service.

Examples might include:

1. Compulsory labelling on cigarette packages with health warnings to reduce smoking.

2. Improved nutritional information on high-fat foods to counter the risks of growing obesity.

3. Anti-speeding television and cinema advertising to reduce road accidents.

4. Advertising health-screening programmes / information campaigns on the dangers of drug and alcohol addiction.

These programmes are really designed to change the “perceived” costs and benefits of consumption for the consumer. They don’t have any direct effect on market prices, but they seek to influence demand and therefore the level of final output and consumption.

The effects of government intervention

Decisions on our future energy sources – government policy intervention can have huge effects on both the short term and the long term allocation of resources in the future

One important point to bear in mind is that the effects of different forms of government intervention in markets are never neutral since financial support given to one set of producers rather than another will always create “winners and losers”. Taxing one product more than another will similarly have different effects on different groups of consumers.

Judging the effects of intervention – a useful check list

To help your evaluation of government intervention – it may be helpful to consider these questions:

1. Efficiency of a policy:  i.e. does a particular intervention lead to a better use of scarce resources among competing ends? E.g. does it improve allocative, productive and dynamic efficiency? For example - would introducing indirect taxes on high fat foods be an efficient way of reducing some of the external costs linked to the growing problem of obesity?

2. Effectiveness of a policy: i.e. which government policy is most likely to meet a specific economic or social objective?  For example which policies are likely to be most effective in reducing the scale of the UK road congestion problem? Which forms of intervention are most effective in improving the incentives of consumers to actively search for work in the labour market? Which policies are more effective in preventing firms from exploiting their monopoly power and damaging consumer welfare? Evaluation can also consider which policies are likely to have an impact in the short term when a quick response from consumers and producers is desired. And which policies are likely to prove most cost-effective in the longer term? For example, how best to encourage recycling in the long run and also provide incentives to increase the supply of energy in the long run that comes from renewable sources such as wind power.

3. Equity effects of intervention: i.e. is a policy thought of as fair or does one group in society gain more than another? For example it is equitable for the government to offer educational maintenance allowances for 16-18 year olds in low income households to stay on in education after GCSEs? Would it be equitable for the government to increase the top rate of income tax to 50 per cent in a bid to make the distribution of income more equal?

4. Sustainability of a policy: i.e. does a policy reduce the ability of future generations to engage in economic activity? Inter-generational equity is an important issue in many current policy topics for example decisions on which sources of energy we choose to rely on in future years.

Positive Externalities

Author: Geoff Riley  Last updated: Sunday 23 September, 2012

There are many occasions when the production and/or consumption of a good or a service creates external benefits which boost social welfare.

External benefits from development of renewable energy sources such as wind power

External benefits from other new production technologies

External benefits from vaccination / immunisation programmes

Social benefits from providing milk to young schoolchildren

Social benefits from the maintenance of a post-office network

Positive externalities and market failure

Where positive externalities exist, the good or service may be under-consumed or under-provided since the free market may fail to value them correctly or take them into account when pricing the product. In the diagram above, the normal market equilibrium is at P1 and Q1 – but if there are external benefits, the Q1 is an output below the level that maximises social welfare.

There is a case for government intervention in the market designed to increase consumption towards output level Q2 so as to increase economic welfare.

Example:

The economics of vaccination

What good is a vaccination? Obviously there are benefits for the person receiving the vaccine, they are less susceptible to disease and children in particular are more likely to attend school and earn more income over their lifetime. A study from the World Bank finds that comprehensive

vaccination programmes have a positive effect on savings and wealth and encourage families to have fewer children which lead to less demographic pressures on scarce resources.

More subtly, it can be good for an entire population since, if enough of its members are vaccinated, even those who are not will receive a measure of protection. That is because, with only a few susceptible individuals, the transmission of the infection cannot be maintained and the disease spread. The dispassionate economic case for vaccination, therefore, looks at least as strong as the compassionate medical one. Spending on vaccination programmes appears to be a sound social investment for the future.

Source: Adapted from the Economist, October 2009

Negative Externalities

Author: Geoff Riley  Last updated: Sunday 23 September, 2012

 Externalities are third party effects arising from production and consumption of goods and

services for which no appropriate compensation is paid.

Externalities occur outside of the market i.e. they affect people not directly involved in the production and/or consumption of a good or service. They are also known as spill-over effects.

Economic activity creates spill over benefits and spill over costs – with negative externalities we focus on the spill over costs

Negative externalities

Negative externalities occur when production and/or consumption impose external costs on third partiesoutside of the market for which no appropriate compensation is paid.

Smokers ignore the harmful impact of toxic ‘passive smoking’ on non-smokers

Air pollution  from road use and traffic congestion and the impact of road fumes on lungs

External costs of scraping the seabed for supplies of gravel

The external cost of food waste The external costs of cleaning up from

litter and the dropping of chewing gum The external costs of the miles that food

travels from producer to the final consumer

The externalities linked to the oil sands project in the Canadian wilderness

The importance of property rights

Property rights confer legal control or ownership of a good.

For markets to operate efficiently, property rights must be protected – perhaps through regulation.

Put another way, if an asset is un-owned, no one has an incentive to protect it from abuse. The right to own property is an essential building block of a market-based system

Failure to protect property rights may lead to what is known as the Tragedy of the Commons  - examples include the over use of common land and the long-term decline of fish stocks caused by over-fishing which leads to long term permanent damage to the stock of natural resources.

Private Costs and Social Costs

Many types of activity give rise to externalities. And these externalities can be positive and

negative.

The existence of externalities creates a divergence between private and social costs of production and the private and social benefits of consumption.

Social Cost      =          Private Cost + External Cost

Social Benefit   =          Private Benefit + External Benefit

When negative production externalities exist, social costs exceed private cost. This leads to over-production if producers do not take into account the externalities.

 

Social costs are the total costs incurred by society from an economic action – they include

private and external costs

External costs from production

Production externalities are generated and received in supplying goods and services - examples include noise and atmospheric pollution from factories.

External costs from consumption

Consumption externalities are generated and received in consumption - examples include pollution from driving cars and motorbikes and externalities created by smoking and alcohol abuse and also the noise pollution created by loud music being played in built-up areas.

Negative consumption externalities lead to a situation where the social benefit of consumption is less than the private benefit.

Negative externalities from production – social cost > private cost

Marginal cost or marginal benefit is the change in total cost or benefits that results from an increase in production or consumption by one unit

In the absence of externalities, the private marginal costs of the supplier are the same as the costs for society. But if there are negative externalities, we must add the external costs to the firm’s supply curve to find the social marginal cost curve.

If the market fails to include these external costs, then the private equilibrium output will be Q1 and the price P1 where private marginal cost = private marginal benefit.

From a social welfare viewpoint, we want less output from activities that create an “economic-bad” such as pollution. A socially-efficient output would be Q2 with a higher price P2. At this price level, the external costs have been taken into account. We have not eliminated the pollution – but at least the market has recognised them and priced them into the price of the product.

Economic and Social Welfare

Private economic welfare requires us to consider only the private (or internal) costs and benefits of production and consumption of goods and services.

But if we wish to look at the economic welfare of the whole community (i.e. the social welfare) then we need to calculate the positive and negative externalities and add them to private benefits and costs. Here is a simple numerical example:

A government is considering four possible capital investment projects. It has the resources to finance and implement only one of these projects. The table below shows the estimated value of the private and external costs and benefits that each project is expected to yield:

  New city by-

pass(£

million)

New school

s(£

million)

Improvement to an existing airport

(£ million)

New hospital

s(£

million)

Private benefits 50 135 130 80

Private costs 120 80 100 65

Positive 90 55 35 120

externalities

Negative externaliti

es60 20 60 45

Net private benefit -70 +55 +30 +15

Net social benefit -40 +80 +5 +90

Net social benefit may be taken into account by a government when deciding which project offers the best potential return for society as a whole

Negative Externalities and Government Intervention

To many economists interested in environmental problems the key is to internalise external costs and benefits to ensure that those who create the externalities include them when making decisions.

Pollution Taxes

One common approach to adjust for externalities is to tax those who create negative externalities.

This is known as “making the polluter pay”.

Introducing a tax increases the private cost of consumption or production and ought to reduce demand and output for the good that is creating the externality.

Some economists argue that the revenue from pollution taxes should be ‘ring-fenced’ and allocated to projects that protect or enhance our environment.

For example, the money raised from a congestion charge on vehicles entering busy urban roads, might be allocated towards improving mass transport services; or the revenue from higher taxes on cigarettes might be used to fund better health care programmes.

Examples of Environmental Taxes include some of the following

The Landfill Tax - this tax aims to encourage producers to produce less waste and to recover more value from waste, for example through recycling or composting and to use environmentally friendly methods of waste disposal.

The Congestion Charge: -this is a high profile environmental charge introduced in February 2003. It is designed to cut

traffic congestion in inner-London by charging motorists £8 per day to enter the central charging zone.

Plastic Bag Tax: A tax on plastic bags in Wales has seen the number given away drop by sizeable amounts according to this news report Since 1 October 2011, there has been a minimum charge of 5p on all single use carrier bags. The Welsh government acted in a bid to encourage re-use of bags and therefore lower demand for single-use free bags. The justification was on economic and environmental grounds:

Vehicle excise duty (VED): Also known as ‘road tax’ – VED starts from a theoretical 'nil' rate and accelerating up depending on the carbon emissions of the vehicle

Problems with Environmental Taxes

Many economists argue that pollution taxes can create problems which lead to government failure.

Assigning the right level of taxation: There are problems in setting tax so that private cost will exactly equate with the social cost.

Consumer welfare effects: Producers may pass on the tax to the consumers if the demand for the good is inelastic and, as result, the tax may only have a small effect in reducing demand. Taxes on some de-merit goods (for example cigarettes) may have a regressive effect on lower-income consumers and leader to a widening of inequalities in the distribution of income.

Employment and investment consequences: If pollution taxes are raised in one country, producers may shift to countries with lower taxes. This will not reduce global pollution, and may create problems such as structural unemployment and a loss of international competitiveness.

Externalities and Regulation

The government may intervene through the use of regulations and laws.

For example, the Health and Safety at Work Act covers all public and private sector businesses. Local Councils can take action against noisy, unruly neighbours and can pass by-laws preventing the public consumption of alcohol. The British government introduced a ban on smoking in public places from July 1st 2007.

The European Union has introduced directives on how consumer durables such as cars, batteries, fridges freezers and other products should be disposed of. The onus is now on producers to provide facilities for consumers to bring back their unwanted products.

Carbon Emissions Trading

The EU Emissions Trading Scheme (EUETS) was launched in 2005 and is a market-based mechanism to incentivise reduction of C02 emissions in a cost-effective and efficient manner.

The EU scheme operates through the trade of CO2 emissions allowances. It creates a market in the right to emit C02. One allowance represents one tonne of C02 equivalent. Companies get most permits free now but many electricity generators in Europe will have to pay for all these from 2013.

A cap is set on emissions – this creates the scarcity required for the market. At the end of each year businesses are required to ensure they have enough allowances to account for their installation’s actual emissions. There are heavy fines for those without such permits.

The aim of carbon trading is to create a market in pollution permits and put a price on carbon. In this way, policy can help internalize environmental costs of firms’ production and encourage lower emissions to tackle climate change

In a cap and trade system, the number of available permits would gradually decline. As the price of the permits rises, so the economics of investing in cleaner technologies will change.  The hope is that businesses will look for ways of reducing c02 emissions in the most efficient way possible

Supply and demand analysis diagrams can be used when discussing carbon trading schemes.

The idea is to gradually cut the supply of permits so that the carbon price is sufficiently high to incentivise businesses to look for ways to cut their total emissions in the most cost-

efficient way.

Subsidising positive externalities

An alternative to taxing activities that create negative externalities is to subsidise activities that lead to positive externalities

This reduces the costs of production for suppliers and encourages a higher output

For example the Government may subsidise state health care; public transport or investment in new technology for schools and colleges to help spread knowledge and understanding

There is also a case for subsidies to encourage higher levels of training as a means to raise labour productivity and improve our international competitiveness.

Producer subsidies

Author: Geoff Riley  Last updated: Sunday 23 September, 2012

What is a subsidy?

A subsidy is a payment by the government to suppliers that reduce their costs of production and encourages them to increase output

The subsidy causes the firm's supply curve to shift to the right

The amount spent on the subsidy is equal to the subsidy per unit multiplied by total output

A direct subsidy to the consumer has the effect of boosting demand in a market

Different Types of Producer Subsidy

A guaranteed payment on the factor cost of a product – e.g. a guaranteed minimum price offered to farmers such as under the old-style Common Agricultural Policy (CAP).

An input subsidy which subsidises the cost of inputs used in production – e.g. an

employment subsidy for taking on more workers.

Government grants to cover losses made by a business – e.g. a grant given to cover losses in the railway industry or a loss-making airline.

Bail-outs e.g. for financial organisations in the wake of the credit crunch

Financial assistance (loans and grants) for businesses setting up in areas of high unemployment – e.g. as part of a regional policy designed to boost employment.

To what extent will a subsidy feed through to lower prices for consumers?

A subsidy has the effect of causing an outward shift in the market supply curve for a product

This depends on the price elasticity of demand for the product. The more inelastic the demand curve the greater the consumer's gain from a subsidy. Indeed when demand is perfectly inelastic the consumer gains most of the benefit from the subsidy since all the subsidy is passed onto the consumer through a lower price. When demand is relatively elastic, the main effect of the subsidy is to increase the equilibrium quantity traded rather than lead to a much lower market price.

A subsidy might be justified if it encourages increased supply and consumption of products

that yield high external benefits

Economic and Social Justifications for Subsidies

Why might the government be justified in providing financial assistance to producers in certain markets and industries? How valid are the arguments for government subsidies?

1. To keep prices down and control inflation – in the last couple of years several countries have been offering fuel subsidies to consumers and businesses in the wake of the steep increase in world crude oil prices.

2. To encourage consumption of merit goods and services which are said to generate positive externalities (increased social benefits). Examples might include subsidies for investment in environmental goods and services.

3. Reduce the cost of capital investment projects – which might help to stimulate economic growth by increasing long-run aggregate supply.

4. Subsidies to slow-down the process of long term decline in an industry e.g. fishing or mining

5. Subsidies to boost demand for industries during a recession e.g. the car scrappage scheme

Economic Arguments against Subsidies

The economic and social case for a subsidy should be judged carefully on the grounds of efficiencyand fairness

Might the money used up in subsidy payments be better spent elsewhere?

Government subsidies inevitably carry an opportunity cost and in the long run there might be better ways of providing financial support to producers and workers in specific industries.

Free market economists argue that subsidies distort the working of the free market mechanism and can lead to government failure where intervention leads to a worse distribution of resources.

Distortion of the Market: Subsidies distort market prices – for example, export subsidies distort the trade in goods and services and can curtail the ability of ELDCs to compete in the markets of rich nations.

Arbitrary Assistance: Decisions about who receives a subsidy can be arbitrary

Financial Cost: Subsidies can become expensive – note the opportunity cost!

Who pays and who benefits? The final cost of a subsidy usually falls on consumers (or tax-payers) who themselves may have derived no benefit from the subsidy.

Encouraging inefficiency: Subsidy can artificially protect inefficient firms who need to restructure – i.e. it delays much needed reforms.

Risk of Fraud: Ever-present risk of fraud when allocating subsidy payments.

There are alternatives: It may be possible to achieve the objectives of subsidies by alternative means which

have less distorting effects

Government Failure: Congestion, Pollution and the Pensions Crisis - Activity

When, how and why should the government intervene in a market? Many economists feel that governments are all too ready to correct apparent market failure by intervening in markets to correct the perceived failure - only to make matters worse by doing so or by creating other problems which could be seen as being more serious than the original problem!

The aim of this Activity is to investigate some cases where governments intervene, to identify the nature of the market failure and the problems a government might face in 'solving' the problems.

Consider the following problems:

Road congestion is increasing in most towns and cities and on motorways

An increase in the number of vehicles on roads, the increase in the number of people learning to drive and the ageing population all lead to an increase in congestion. Should it be reduced and if so, has the government a role to play?

Image copyright: Christian Sommer, stock xchng

River pollution is found to be rising at levels above acceptable limits, especially in areas near to urban conurbations

Why do people pollute rivers and what could be done to solve the problem? In whose interest is it to see such problems

resolved and what power do they have to influence the decision-making process?

The number of people unlikely to have pension provision in the future is increasing

Many people will have

inadequate pension

funding for when they

get older. © Photolibrary

Group

Tasks:

1. In each case, identify the nature of the market failure - why are these problems arising?

2. Identify potential measures the government might use to intervene in the market to correct the perceived failure. There may need to be a variety of solutions used, each of which contributes in some way to the solution.

3. Refer to the information on 'rent seeking' and 'log-rolling' in the presentation. What relevance have these concepts got to the problems identified? Who might the special interest groups be who might seek to gain benefits at the expense of others?

4. How might the government measure the effect of the intervention strategies you have identified in question 2 above? What problems might they face in gaining an accurate measure of such effects?

5. Choose ONE of the problems you have investigated and produce a 750-word report summarising the problem, the solutions and the likely outcomes of the solutions on correcting the market failure.

Market Failure: Genetically Modified Food - Activity

A report on the use of Genetically Modified (GM) crops was released in the autumn of 2003. Supporters of GM technology pointed out that it showed GM technology did have a future; detractors hailed the report as a victory for them claiming it confirmed the suspicions they had abut the potential damage GM crops could cause. How can such a report please both sides? It depends on which parts of the report you look at and what you choose to place the emphasis on. Some of the trials suggested that the ecosystems upon which so many plants and animals rely could be adversely

affected whereas other aspects of the trials seemed to suggest there might be some benefits!

Image: How will the face of farming change in the coming years?

Would farmers and consumers benefit from growing GM crops?The Case For:

The main arguments put forward by the key players in the market is that the use of GM technology would increase crop yields and that there would be additional benefits in terms of the reduction in pesticides that need to be used. GM crops could be engineered to be more resistant to disease and pests and thus be more 'reliable'. Less spraying is not only good for the environment but also helps to reduce the cost of production meaning that consumers could get quality crops at a cheaper price.

The Case Against:

Those against GM crops argue that it could damage the status of the growing number of organic farmers because there would be no way to prevent cross-contamination. The moment contamination occurred, organic farmers by definition would no longer be organic. In addition, opponents of GM foods argue that the experience in the United States and Canada shows that far from reducing the amount of chemicals needed to grow a successful crop, even more powerful chemicals need to be developed to kill off the 'super weeds' that grow as a result of the collateral breeding between GM crops and their plant neighbours and they suggest that the evidence to support the reduction in costs and increase in yields and profitability does not seem to have come!

Stepping aside from the emotional aspects of the argument, it can be seen that we have been tampering with nature for many. Look at any garden and you will see plants that are a uniform height and colour, plants that would not normally survive in our climate and many

that have been produced by some form of intended or unintended gene manipulation. The way that we produce our food - even the organic food - has changed beyond recognition thanks to the use of science to create crops that are more resistant to disease and pests, and which are more uniform in habit, yield and behaviour. To avoid eating any food that has not been manipulated in some way would be almost impossible.

For many, therefore, the issue is that we do not fully understand genetics and what the distinction is between an F1 hybrid petunia and a geneticaly modified maize seed. Moreover, we are bombarded with snippets of information from the likes of Greenpeace and Friends of the Earth on one side and equally from the large companies who have a major interest in the development of GM technology - companies like Monsanto, Bayer, Syngenta, Dow Agro-Chemicals, and Du-Pont, on the other. The government in turn, seem to be finding it difficult to present a coherent case to the public that is definitive - probably because they do not fully understand or know all the ramifications themselves!

Questions Total Marks = 50Read the information above and answer the following questions:

1. Using examples, what do you understand by the following terms:o External costso External benefits(8 Marks)

2. Read the final paragraph above. Explain how the contents of this paragraph highlight how ignorance can be a major cause of market failure. (10 Marks)

3. Use diagrams to explain how society could suffer a welfare loss from the use of GM technology, but also from not using GM technology. (16 Marks)

4. With reference to the case study and any other information you are aware of, examine the case for the extension of GM technology in agriculture in the UK. (16 Marks)

Positive and Negative Externalities – Tuition fees and Wind Farms

Two topical events highlight the problems and complexities involved in economic decision making. The first involves the decision by the Government to allow universities in England and Wales to charge up to £3,000 per year for tuition fees. For many students this will mean that they will leave university in debt that will take many years to clear as well as potentially putting off students from low income backgrounds from applying to university.

The second relates to Government plans to expand the number of wind farms on the coasts of England and Wales to help achieve the target of increasing the amount of energy from renewable sources to 10% by 2010.

Both cases involve the issue of externalities - one aspect of market failure. In both, there are positive and negative externalities involved. Your task is to engage in a debate to discuss the relative merits of the two cases. In presenting your case you will need to consider some of the following issues:

Tuition Fees

The aims of the GovernmentThe perceived need to increase the number of people going to universityThe earning power of those going to university in the futureThe morality of expecting the taxpayer to subsidise university educationThe benefits to society of a better educated workforceThe relevance to society's needs of some university coursesAlternatives to the need to fund higher education

Wind FarmsThe economic viability of wind farms - how much electricity can they produce?The cost of setting up wind farmsWhere the funding will come from and the circumstances under which such investment will be forthcoming - should it all be from the Government?The location - a visual attraction or aesthetic nightmare?Noise pollution - those living nearby may be affected?Alternative forms of energy

Image: A wind farm. Copyright: Carlos Zaragoza

TaskYour task is to produce a balanced argument with a recommendation on the way forward for the issue that

you have been covering. You must explain the issue using appropriate economic theory and concepts and highlight the key issues using diagrams where necessary. The learning objectives of this activity are to be able to:

Work as a group to research a current issue Articulate the key points relating to the issue and

to have data to support those key points Use appropriate economic theories to help explain

the issues arising Understand, use and manipulate diagrams to help

explain the issue being studied Arrive at informed conclusions based on some

clearly defined criteria supported by appropriate data

Related Web site for Research:Tuition Fees

Hodge makes a case for raising tuition fees - from the Guardian - some interesting statistics quoted

The future ofhigher education - from the DfES - presents the issues facing higher education [PDF, 610 KB]

Universities UK - represents higher education institutions in the UK Higher education inthe United Kingdom - from the Higher Education

Funding Council for England (HEFCE) - includes useful links and key facts [PDF, 243 KB]

Articles from the BBC:o Blair defends top-up feeso Tuition fees 'justified by earnings'o Tuition fees dog Labouro Q&A: Student fees

The National Union of Students' viewWind Farms

British Wind Energy Association - look for the links to various reports that give summaries of the key issues

Wind farms produce power from thin air - from the Seattle Post-Intelligencer

Another view on a wind farm from the US - from the Cape Cod Times - ask yourself how far the US experience is relevant to that of the UK

Offshore wind farm gets go-ahead - from the Guardian Map showing proposed offshore wind farms in the UK - from the Crown

Estate [PDF, 273 KB] Offshore Wind Energy Network Go-ahead for offshore wind farms - from the BBC npower renewables - a major company involved in the development of

wind power in the UK Thousands of new jobs as green power market takes-off - from Friends of

the Earth