Reference case: (do not include this case into the answer, just for reference)

Coffee is one of the most popular drinks in the world and a big market in Asia In recent years Asian consumers have become concerned that coffee farmers often receive very low prices by large coffee companies buying their beans and selling them in international markets. For this reason, fair trade coffee has reached supermarket shelves and coffee shops. Because producing fair trade coffee includes providing extra income for the farmers, this product is more costly to make than other coffee types of comparable quality. Using the demand-supply model, analyse this change in consumer preferences. Examine the likely consequences in one or two markets of your choice.

Main Question:

In Europe, the government is also concerned about the situation explained in the previous case. But it has come to light that many coffee brands are wrongly marketed as fair trade by unscrupulous coffee companies, disguising the low wages paid to bean pickers. Such firms also contribute to groundwater pollution and deforestation by squeezing coffee farmers who need to cut production cost to make a living. Use the theories of market failure and government intervention to explain the reasons for this concern. Identify different suitable government interventions that the European government may consider. Critically discuss potential problems with these interventions.

(What to include in the answer?)

This is a Market failure question

Assumption of market efficiency challenged

Market failure explained

Nature

How it results in market inefficiency (important!)

Government intervention

MUST be linked to the market failure for example, if the market failure is caused by information failure, then government intervention should provide information

Explain how it helps to correct market failures

Government failure

Preparation work

Stand by externality graph(s).Not possible to explain externality without graph.Avoid using terms like D, S, use "private cost", "social cost", "private value", "social value" etc.

Stand by tax/subsidy graphs and ensure that the correct graph is used

Prepare write-up on government failure