Use the extracts and your knowledge of economics to evaluate whether the UK government should continue to provide free bus travel for all, some or no elderly people. (June 2020)
Plan
- Intro - market failure, government intervention, government failure
- Paragraph 1 - if bus travel is left to the free market...
- this is good because the price mechanism can easily resolve issues such as excess demand or excess supply
- Evaluation
- BUT, the free market fails to account for externalities
- bus travel is a merit good
- Paragraph 2 - if bus travel is provided free for all...
- state provision
- state provision diagram
- Evaluation
- huge opportunity cost
- people are willing to pay for bus travel - just provide it for some people?
- excess demand
- bus travel is an inferior good
- Conclusion - means tested
There may be a market failure in bus travel, which is when there is a misallocation of resources. Government intervention should be able to correct the market failure, but could also government failure.