JC Economics Essay Series #69 – Economic Efficiency & Market Structures

JC Economics Essay Economic Efficiency & Market Structures Model Answers 

When it comes to essays on Market Structures, most students tend to avoid it. If unavoidable, then usually they do not fare very well for it, obtaining merely 9 to 14 marks, out of 25 marks. Worse when it mixes with the topic of  Market Failure topic. Fortunately such tough questions do not appear for the Promos exams. However, JC2 H2 Econs students must be prepared for such combined-topic questions.

The following essay questions asks you to explain the concept of economic efficiency, applied to firms in Monopoly, Perfect Competition, etc. JC Economics candidates taking the Prelim exams and also Cambridge A-Levels, beware!


When a country’s private sector is increased in size, economic efficiency in the use of resources can be achieved. Government intervention in markets should therefore be minimised. Discuss. [25]


JC Economics Essay – Economic Efficiency Concept

Suggested Answer:

Explain the concept of economic efficiency: 
Economic Efficiency occurs there is an optimal allocation of resources with minimum wastage of these scarce resources. Thus, it includes both  allocative efficiency (AE) and productive efficiency (PE).

Achieving EE can address the issue of scarcity-unlimited wants and limited resources, need to utilise scarce resources in the most efficient manner to maximise society’s welfare.

AE: This occurs when there is an optimal distribution of goods and services, taking into account consumer’s preferences. The condition of allocative efficiency (AE) is at an output level where the Price equals the Marginal Cost (MC) of production [P = MC]. This is because the price that consumers are willing to pay is equivalent to the additional satisfaction or marginal utility (MU) that they get. Therefore the optimal distribution is achieved when the marginal utility of the good equals the marginal cost.

Productive efficiency (PE) occurs when goods and services are produced with the optimal combination of inputs to achieve the minimum cost possible. IN firms, this occurs at the lowest point on the long run average cost curve. (LRAC)

Explain the concept of economic efficiency and state the conditions that needs to exist for markets to achieve EE:
1.Perfect competition
2. No externalities
(More on the explanation in our Economics Intensive Revision programme.)

Explain how to expand private sector ->
Method A : (Privatisation, deregulation, liberalisation etc. to lower barriers to entry (BTE); Introduce more competition)
Method B (Relax anti-competitive or anti-trust laws)

(Note: The elements in each of the sub-argument must consist of a statement of the meaning of efficiency and whether it is important to achieve efficiency, a consideration of whether the assertion is correct that the only means of achieving efficiency is if the private sector is increased in size and, whether, a minimisation of govt intervention will attain economic efficiency to a larger extent.)



Thesis: Explain why should minimising govt intervention can help the market attain economic efficiency
Via Method A: introduce competition, less BTE, etc

METHOD A) Privatisation, deregulation, liberalisation etc. to lower barriers to entry (BTE); Introduce more competition. Even allow foreign firms to enter economy and compete. Expansion of private sector will introduce more competition and allow freer play of market forces, which will work automatically to achieve both allocative and productive efficiency due to the pursuit of self interest / incentives drive.

Explain why market forces will work through incentives to achieve both allocative and productive efficiency.

Minimising govt intervention means to avoid distortions to market forces that will disrupt the price mechanism in achieving economic efficiency. This will also minimise the occurrence of govt failure and maximise society’s welfare.

Explain how govt policies such as subsidy could create disincentive effects and encourage wastage.



Anti-thesis: Explain why should NOT minimising govt intervention so as to attain EE

METHOD B) Relax anti-competitive or anti-trust laws. In Singapore, a government authority body called the CCCS, aka Competition and Consumer Commission of Singapore, oversees the competition of markets and ensures no consumer exploitation. In this case, the Competition Act in Singapore put up by CCS should be more relaxed, to allow firms to grow (ie. be more market dominant.)


Explain how expansion of private sector may aggravate market failure such as mkt dominance. Use monopoly diagram to explain undesirable impacts.

In addition, expansion may lead to generation of externalities, that could threaten both productive AND allocative efficiencies. 
(Sketch diagram to show divergence between private and social costs, say for pollution.)

Moreover, it is also important to ensure equity in the distribution of resources when addressing scarcity. Anti-thesis 2: Explain why an expansion of private sector may not achieve economic efficiency.

For the above 3 points of anti-thesis, explain about 2 different policies in total will suffice.


Can allow firms to expand in size, but not to the point of being a monopoly, or becomes an oligopoly market structure but behaving collusively.
Also can consider the extent to which the conclusion in the overall statement is true.


Mark Scheme:
L3: For an clear explanation of efficiency, a clear assessment of the assertion in the quote and a reasoned conclusion

L2: For a competent explanation which does not fully analyse the meaning of efficiency or explains efficiency but does not fully deal with the assertion about the private sector. There will be some discussion but the evaluation will not be extensive.
OR For an accurate though undeveloped explanation of efficiency but with very little evaluation of the role of the private and public sector and no conclusion
OR For an answer which shows some knowledge but does not indicate that the question has been fully grasped. The answer will have some correct facts but include irrelevancies. 

L1 (1-9 marks): Errors of theory or omissions of analysis will be substantial.

E1: 1-2m
E2: 3-5m


For full sample answers and exam techniques on how to answer any MARKET Structures + failure essays questions (so you don’t to have to attempt market mechanism, join our JC Economics tuition lessons and quickly learn to secure that elusive distinction grade “A” now!