25 Mark Frameworks

Question 1

Minimum price pros (3) e.g alcohol/fatty foods

Answer 1

Reduces overconsumption+negative externalities. Can reduce need for healthcare/police officers, can be spend elsewhere with positive externalities.

Reduced consumption can also improve health, productivity, output and profit. More tax rev, budget improves or more spending.

Increased price increases profits for firms(potentially reducing monopsony power if it exists). Can expand, hire more, increases corp+income tax rev. Gov can spend on positive externalities.

(basically point1:reduced consumption>government spending for externalities
point2:reduced consumption>improved productivity)

Question 2

Evaluation for minimum price (3)

Answer 2

Depends on elasticity-inelastic=QD unresponsive to price increases.

Unintended consequences=creates black markets

Hard to choose optimum price-Higher price=regressive+less internationally competitive-excess supply, lose sales and force job cuts (derived demand)

Excess supply can also create waste+tragedy of commons harms long run production potential

Question 3

Maximum price pros (2)

Answer 3

Low prices-benefits consumers and improves equality (reduce monopoly power)

Encourages more consumption of underconsumed goods with external benefits e.g milk

Question 4

Maximum price evaluation

Answer 4

Distortion of price signals-low prices reduce incentive to supply, consumers don’t have enough, fall in living standards

Quality-may be cut to reduce costs, or lower profits reduce incentive to invest dynamically

Question 5

Tax pros e.g sugar/pollution

Answer 5

Internalise neg externalities, force firms to pay tax equal to external cost

Correct information gaps-reduce consumption, improve productivty

Raise tax revenue to spend on education/healthcare

Question 6

Tax evaluation (4)

Answer 6

Hard to quantify external costs-risk of too high/too low

Elasticity-inelastic=ineffective

Unintended consequences-black market

Regressive-hit poorest hardest-equality…?

Question 7

Subsidy pros (3)

Answer 7

Lower prices for consumers

Higher profits for firms, more jobs

HIgher profit for firms, investment

Question 8

Subsidy evaluation (2)

Answer 8

Opportunity cost to government

Firms become dependent on subsidy and become lazy and inefficient

Question 9

State provision pros (3)

Answer 9

Solves free rider problem e.g public goods would not be bought, producers would not provide either.

Reduces underconsumption, provides positive externalities e.g healthcare>prod>firm’s profit>tax revenue for spending on more positive externalities e.g education

Fairer prices-helps poor

Question 10

State provision cons (3)

Answer 10

Excess demand-free consumption, so can lead to people not getting access to provision. Also hard to ration. e.g healthcare maybe ration by severity of condition but quality may fall as rushed. (upholds the idea that private sector should intervene to alleviate pressure on NHS)

Opportunity cost-can’t spend in other areas+budget deficit

Admin costs/bureaucracy swallows up a lot of the cost +no profit motive so become even more inefficient

Question 11

MATES framework for general evaluation-only use if can’t remember specific evaluations

Answer 11

Missing information e.g price may be low to begin with
Applies to all? e.g some firms/consumers may benefit
Time
Elasticity
Scale

Question 12

OQT framework for externalities

Answer 12

Opposite
Quantify: missing info, lots of people affected, value judgements required to quantify cost
Time

Question 13

TPP pros (3)

Answer 13

Reduces pollution-firms with lowest cost of reducing can sell permits to those finding it expensive to reduce

Incentives investment in eco-friendly tech-can sell their permits for more profit too

Auctions and fines raise revenue to spend on renewable energy

Question 14

TPP cons (3)

Answer 14

If too little permits, increase cost of polluting, reduces profits, risk of job loss

Hard to quantify permit numbers-too many-permits become cheap and firms continue polluting.
too little-firms lose incentive, may move abroad

Admin costs of running scheme. Creates opportunity cost, diverts funds from elsewhere

Question 15

Reasons for min wage (5)

Answer 15

Poverty alleviation-living standards

Reduce wage differentials (income equality)

Fiscal benefit to government (more income tax reduced benefits)

Morale boost-increased productivity

Counter monopsony power

Question 16

Reasons against min wage (3)

Answer 16

Higher costs-classical unemployment (contract QD), higher costs=higher prices=shut down or lack of international competitiveness against countries with no min wage e.g Germany

Set too low-ineffective

Those not on NMW may want higher wages to maintain wage differential

Question 17

Reasons for max wage

e.g 20x above lowest paid worker in firm (2)

Answer 17

Reduce inequality:Gap falls, and incentive to increase wages for lowest to increase maximum wage for CEOs.

Cuts costs for firms-lower prices reduce inflation, improving real incomes of poor, reducing inequality

Gov spending costs fall too, use to invest to restribute income further e.g education

Question 18

Reasons against max wage (3)

Answer 18

Easy to evade-can be paid in bonuses or shares, so max wage will be ineffective

Reduces income tax revenue-progressive, rich will earn less (Top 1% pay 25% of all income tax) less money on benefits, worsening inequality

Disincentive to work-may move abroad, loss of high skill workers, can lead to understaffed, ruin production process, or lower quality workers are less efficienct, increasing costs and reducing profit, costs can be passed onto consumers, lowering real income and equality