Econ 1 Answering part d on market forces

Often the two part d's on offer are either debate government intervention or evaluate case for and against leaving it to market forces. With the latter it is important to remember:

The power of market forces to remove surpluses or shortages as you have already most probably analysed in part c.

The use of data to suggest how successful market failure can be corrected by a laissez-faire (leave it alone) approach, are there any signs of change? For example renewable energy takes up less than 5 of overall energy output. Is this because the energy market has been left to competitive pressures or because of the large state subsidies to non renewable sources in the past?

Markets do not sit still like a diagram on the page but are constantly changing, this is what we mean by dynamic market forces. For example given a demerit good it will be in the interests of producers in competitive markets to  encourage consumers to switch away from the demerit good: 'Quit smoking and join a gym.' So overtime demand will shift in. At the same time it is in the interest of producers of demerit goods to either internalise the external cost as consumers become more aware e.g paying more to carbon offset your flight.

So this type of question is more a debate as to what extent a market can self correct itself, i.e. does it exhibit:

• Perfect information
• Many buyers and sellers
• Ease of entry and exit
• Homogenous product
• Private ownership
• Rational consumer behaviour.