Exam-style question
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Government target on 3.1.4.5 Economies and diseconomies of scale: which option best explains the economic mechanism in Individuals, firms, markets and market failure?.
- A.Use a three-step chain: cause changes incentives, incentives change demand or supply behaviour, and the new equilibrium affects welfare or resource allocation.
- B.Regulation is the same policy as a subsidy because both involve government.
- C.Government intervention always removes market failure with no trade-off.
- D.Give a definition of economies and diseconomies of scale only, without application, chain of analysis, evaluation or judgement.
Model answer
What a good answer should say
- Correct answer: Use a three-step chain: cause changes incentives, incentives change demand or supply behaviour, and the new equilibrium affects welfare or resource allocation..
- It is correct because it links 3.1.4.5 economies and diseconomies of scale to policy intervention and keeps the reasoning within the evidence supplied by the question.
Explanation
Why this works
The reasoning should move from cause to transmission mechanism to consequence. Use a diagram, calculation or data point if it is relevant, then test the answer with Economics evaluation: size of effect, time period, elasticity or responsiveness, assumptions, and distribution of gains and losses.
This keeps the response specific to Production, costs and revenue rather than repeating a generic question template.
Common mistake
No common mistake is linked to this question yet.