With the help of a diagram, assess the effectiveness of a government's intervention in the price mechanism to address the causes of climate change.

With the help of a diagram, assess the effectiveness of a government's intervention in the price mechanism to address the causes of climate change.

Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question.

AO1 and AO 2 out of 14 marks. AO3 out of 6 marks.
Indicative content
Responses may include:
AO1 Knowledge and understanding and AO2 Analysis
- An explanation of the link between climate change and negative externalities.
- Explanation of negative externalities
- Recognition that negative externalities can be caused by production or consumption.
- Use of a diagram to show the links between climate change and negative externalities
- Analysis of how market forces can be used to address the consequences of climate change.

L2 maximum if no accurate diagram provided.

AO3 Evaluation
- The link between climate change on negative externalities is very difficul to accurately establish
- It is also extremely difficult to measure negative externalities
- The use of taxation to influence price and output is unlikely to remove al negative externalities because it is very difficult to measure the correct amount of taxation that should be applied.
- The use of minimum prices to reduce negative externalities would only be partially effective and might have significant effects on firm's profits anc employment.
- Alternatives to the use of the price mechanism might, in some circumstance, allow a government to achieve a more precise control of negative externalities. For example, through the use of a complete ban of consumption/production.
- A conclusion should be attempted which examines the net benefits of each alternative i.e. through direct government intervention or through the use of market forces.

Accept all valid responses.