1.4.1 Government Intervention Flashcards
What are some types of gov intervention?
-Indirect taxes
-subsidies
-max/min prices
-state provision
-info provision
-regulation
What are price controls
Gov impositions on the price of products
-guaranteed mim price
-mim price
-max price
What are guaranteed minimum prices
When the gov offers a price floor in attempt to help producers increase there income, guarantee supply, preserve rural employment, by encouraging production
To be effective has to be greater than market price
What are minimum prices
Set by the gov to discourage consumption of a particular good, higher than market price
What are maximum prices
gov set price ceiling that suppliers cannot exceed, to encourage consumption and prevent prices rising has to be below market price
How does rationing take place when there is max price
in a shortage it will be first come first serve or preferred customers, which is inequitable as those with greater need for good are unlikely to have needs met as the price mechanism isn’t allowed to work
What are shadow markets
illegal markets in which the market price is higher than legally imposed max price, as some customers are prepared to pay higher prices, e.g tickets to sports or music events
What are tradable pollution permits
gives firm the right to emit a given quantity of waste or pollution into the environment
What is the cap and trade system
-gov sets emissions limit
-permits issued by auction
-there is a secondary trade market for permits
-gov tightens cap each year
-if demand for permits is greater then cap price of permits increase
-increasing incentive to reduce emissions
What are the advantages of pollution permits
-incentivises pollution control equipment
-efficient manner (those who can reduce and sell for profit, those who cant buy)
-low monitoring and administration costs
-revenue from scheme used for environmental improvements
-market based solution so price internalises the externality
What are the drawbacks of the pollution permits
-if price of permits is too low companies are happy to pay to pollute
-increased costs for firms damages competitiveness with countries without permits
-pollution comes from other sources not just factories
What is state provision and effects
gov provided goods or services, using tax revenue, provides equity, causes inefficiency, cant be provided by priv sector due to free riders
What is provision of information and effects
gov provides info to comsumers to correct info gaps, reduce info failure (e.g anti cig campaigns), increase labour mobility (job vacancy info), can be costly and doesny work on addicted customers
What is regulation and effects
when demerit goods are restricted by legalisation (e.g drugs) but cretes problems of shadow markets, safety and individual liberty
