5360566
Description
Flashcards by Sophie Knight, updated more than 1 year ago
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Created by Sophie Knight
over 8 years ago
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| Question | Answer |
| Give 6 advantages of indirect taxes to correct market failure | 1. External costs are paid for 2. Choice still exists 3. Level of pollution should fall 4. Tax funds are increased 5. Difficult to evade 6. convenient as they are paid in small amounts |
| Why does the government intervene in markets? | To correct market failure so that markets allocate resources more efficiently so there is less welfare loss |
| Give 8 disadvantages of using indirect taxes to correct market failure | 1. difficult to quantify external costs 2. Makes firms less competitive 3. May be inflationary 4. Firms may relocate abroad 5. The PED could be inelastic so the tax would have very little impact 6. Unintended consequences 7. Tax revenue may not be enough to compensate for externalities 8. They ave a regressive nature |
| what is a subsidy? | A government grant given to firms to encourage the production and consumption of a particular good |
| what are the 3 main advantages of subsidies? | 1. Can reduce external costs 2. Promote external benefits 3. Can change the rate of consumption of other goods (substitutes) |
| Give 4 disadvantages of subsidies | 1. Difficult to quantify external benefits 2. opportunity cost for government 3. Unintended consequences 4. May encourage inefficiency |
| when will a maximum price have no effect? | When it is set above the market equilibrium |
| What are the 3 main advantages of a maximum price? | 1. They can reduce exploitation of consumers, especially when there is a monopoly 2. Reduces inequality (salary cap) 3. Can help people on low incomes to afford key products |
| Give 5 disadvantages of maximum price schemes | 1. Unintended consequences occur 2. Reduces supply, creating a shortage 3. Producer surplus falls 4. Problems occur when deciding how to allocate supply to meet the excess demand 5. Difficult to monitor as secondary markets could be formed |
| What are 2 reasons for the introduction of a minimum price | Protecting the wages of workers in certain industries (e.g. farming) Discouraging goods with negative externalities like alcohol |
| What is a GUARANTEED minimum price? | Its when the excess supply is purchased by the government at the minimum price to protect producer incomes |
| Name 6 advantages of minimum prices | 1. Reduces consumption of goods that are harmful to consumers 2. Encourage producers to switch to a less harmful good 3. reduce fluctuations in prices 4. Stabilises incomes 5. Surpluses can be used to aid other countries 6. Reduces worker exploitation |
| Give 9 disadvantages of minimum prices | 1. Unintended consequences 2. Hardship for low income earners 3. If PED is inelastic then it will have little effect 4. Government has to buy up stocks so opportunity cost 5. Increased storage costs 6. Surpluses could be sold abroad for really low prices 7. Could lead to inefficient working when guaranteed an income 8. Causes unemployment 9. difficult to monitor and enforce |
| What is a cap and trade system? | where the government limits the amount of pollution that firms are allowed to emit but also allows them to buy and sell pollution permits between themselves |
| What are the 6 advantages of tradable pollution permits? | 1. A price mechanism is created 2. They can be reduced over time 3. Revenue from selling them could be invested in green technology 4. Production costs will rise for firms that exceed their permits 5. Firms have incentive to invest in green technology 6. Firms can bank them for future |
| Name 8 disadvantages of tradable pollution permits | 1. Information gaps may lead to too many/few being issued 2. Causes coperate disputes 3. Firms may push the costs onto consumers 4. Firms may relocate to areas without permits 5. Uncertainty has been created by the fluctuating prices of the permits 6. Cost to the government through the monitoring of the permits 7. The permits need to be in place all over the world to be effective 8. The valuation of the permits is an inexact science |
| What are the 3 main reasons to the state provision of information? | 1. To encourage the production and consumption of healthy goods 2. To discourage the production of unhealthy goods 3. To notify and remind people of the laws for their own protection |
| What are the 4 advantages of regulations? | 1. Simple to understand 2. Can protect consumers 3. Fines act as deterrents for both consumers and producers 4. Reduces the problem of asymmetric information |
| What are the 5 disadvantages of regulations? | 1. Can be expensive to monitor and enforce 2. Can be set at the wrong level 3. Increases production costs making firms less competitive 4. Prevents the price mechanism from working 5. Unintended consequences |
| What is government failure? | when government intervention leads to an inefficient allocation of resources and a net welfare loss |
| What are the 3 types of government failure? | 1. Distortion of price signals 2. Unintended consequences 3. Excessive administration costs 4. Information gaps |
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