1.4 Flashcards
min/ max pricing eval
PED/ PES
underground market
potential loss in tax revenue
firms may leave/ shrink
normative, info gap
DWL
min price
typically sinful goods
protect producers, but makes consumers pay more
Pmin above P1
max price
typically staple goods
protect consumers, but makes producers leave/ reduce Qs
Pmax below P1
cap & trade schemes
pollution permits limited, lowers each year to force green innovation (as CoP↑), can be bought from gov or traded, some given to prevent off-shoring
pollution permit eval
magnitude
arbitrary prices
firms can offshore
productivity and growth↓
EU less competitive
government failure definition
when gov intervention increases rather than decreases the DWL area
gov failure main causes (5)
distorting price signals
law of unintended consequences
excessive admin costs
info gaps
public choice theory
distorting price signals
by moving away from a.e. theres a risk of becoming inefficient
law of unintended consequences
unforeseen circumstances causes desirable outcomes
excessive admin costs
the cost shouldn’t be more than the benefit
info gap
impossible to fully know the magnitude and hence how effective the policy is
public choice theory
politicians will maximise their own utility as well as social welfare e.g. lobbying
