Syllabus: Pearson - AS Level Economics
Module: 1.4 Government Intervention
Lesson: 1.4.1 Government Intervention in Markets

Introduction

This topic from the Pearson Edexcel AS Level Economics A syllabus sits within Theme 1: Introduction to markets and market failure. Specifically, 1.4.1 focuses on how governments intervene when markets don’t deliver efficient or fair outcomes.

Students are expected to understand the rationale behind interventions like taxes, subsidies, and price controls, and be able to evaluate their effectiveness. For teachers, it’s a golden opportunity to bring economics to life using current policy debates and local examples. It also strengthens students’ ability to think critically and apply theoretical models to messy, real-world situations.

Key Concepts

Aligned to Pearson Edexcel’s 1.4.1 specification, students should be able to:

• Explain why governments intervene in markets, particularly in response to market failure.

• Use supply and demand diagrams to illustrate interventions:

  • Indirect taxation (both ad valorem and specific)

  • Subsidies

  • Price controls: maximum and minimum prices

• Evaluate other forms of intervention:

  • Trade pollution permits

  • State provision of public and merit goods

  • Provision of information to correct information failure

  • Regulation

• Assess the impact of interventions on consumers, producers, and society.

• Understand the potential for government failure, where interventions may lead to a net welfare loss.

Real-World Relevance

Government intervention isn’t abstract. It shows up in the news weekly — from the UK government capping energy prices during the 2022 cost of living crisis, to debates over sugar taxes and fuel duty freezes.

Case in point: When the UK government imposed a minimum unit price for alcohol in Scotland, it aimed to reduce overconsumption of demerit goods. Early data showed a reduction in alcohol sales, sparking debates about the balance between health outcomes and consumer freedom.

Similarly, during the COVID-19 pandemic, subsidies and furlough schemes were massive interventions to support failing labour markets — a textbook example of state provision stepping in during market failure.

These examples help anchor theoretical diagrams in social and political context, encouraging students to consider economics as an active force shaping lives.

How It’s Assessed

In Pearson AS Economics A, this content appears in Paper 1: Markets and Market Failure. Expect:

• Data response questions with real-world stimulus material

• Short-answer and long-answer questions asking for diagrams and evaluation

• Frequent use of command words like:

  • Explain (e.g. Explain how a subsidy affects consumer surplus)

  • Analyse (e.g. Analyse the effects of a price ceiling on market equilibrium)

  • Evaluate (e.g. Evaluate whether indirect taxation is an effective way to reduce negative externalities)

Strong responses demonstrate diagram fluency, balanced argument, and real-world examples.

Enterprise Skills Integration

Teaching this topic is a natural fit for embedding enterprise and economic decision-making:

• Problem-solving: Students weigh up the effectiveness of different interventions.

• Critical thinking: Evaluating unintended consequences or distortion of price signals.

• Communication: Presenting balanced arguments, both verbally and in writing.

• Numeracy: Applying elasticity concepts to determine the burden of taxes and subsidies.

Set students a challenge like redesigning a failing intervention or proposing a policy for a local externality — it develops real-world agency alongside economic understanding.

Careers Links

This unit links directly to Gatsby Benchmarks 4 (linking curriculum to careers) and 5 (encounters with employers via case studies or guest speakers). Relevant pathways include:

• Public Policy and Civil Service – understanding how to shape fair regulation.

• Economics and Research – evaluating real-world policies using data.

• Consulting and Advisory Roles – making recommendations to businesses or governments.

• Environmental Economics – applying policy tools like pollution permits or subsidies.

Encourage students to explore roles at the Competition and Markets Authority, Treasury, or sustainability think tanks. Even basic familiarity with these can give learners a sharper sense of direction and purpose.

Teaching Notes

• Start with lived experience: Use relatable examples like bus subsidies, vaping regulations, or price caps on energy.

• Reinforce diagrams early: Tax and subsidy diagrams often trip students up. Build confidence with scaffolded drawing practice.

• Push for application and evaluation: Get beyond “what is a subsidy” to “when does a subsidy help or hurt?”

• Common pitfalls:

  • Confusing maximum with minimum prices

  • Forgetting to consider elasticity when evaluating tax effects

  • Over-simplifying the causes of government failure

• Stretch & challenge: Ask students to research and present an example of intervention from another country and argue whether it was effective.

• Quick activity idea: Set up a classroom market for bottled water, then intervene with a tax or price cap. Let students see the impact first-hand, then draw and analyse it.