4.1 Government Intervention in Markets

Question 2

Benefits of an indirect tax?

Answer 2

• Govt revenue
• Reduce consumption
• Internalise externality

Question 3

Drawbacks of an indirect tax?

Answer 3

• Regressive
• Depends on PED
• Inflation

Question 4

Example of indirect tax?

Answer 4

• UK Sugar Tax
• UK Alcohol + Tobacco Duties
• Plastic Bag Charge

Question 5

Benefits of subsidies?

Answer 5

• Investment
• Lower prices
• Increased competitiveness

Question 6

Drawbacks of subsidies?

Answer 6

• Opportunity cost
• Subsidy dependence
• Malinvestment

Question 7

Examples of subsidies?

Answer 7

• US: Boeing $15.5bn
• NHS subsidy
• Sweden: Higher education

Question 8

Benefits of maximum prices?

Answer 8

• Lower prices
• Increased consumption
• Reduce excess profits

Question 9

Drawbacks of maximum prices?

Answer 9

• Lower supply
• Bureaucracy costs
• Reduced quality

Question 10

Examples of maximum prices?

Answer 10

• Scotland 12% inc. rent cap
• Ofgem £1800 per year
• Ofwat £60 inc. per year

Question 11

Benefits of minimum prices?

Answer 11

• Internalise externalities
• Higher profits
• Social benefit

Question 12

Drawbacks of minimum prices?

Answer 12

• Higher prices
• Depends on PED
• Black Market

Question 13

Examples of minimum prices?

Answer 13

• Scotland: Alcohol 65p per unit
• UK: NMW = £10

Question 14

What are tradable pollution permits?

Answer 14

Set amount of permits for pollution are distributed and price rises while permits decrease

Question 15

Benefits of tradable pollution permits?

Answer 15

• Increase costs of pollution
• Internalise externality
• Government revenue

Question 16

Drawbacks of tradable pollution permits?

Answer 16

• Where to set price?
• PES of industry
• Only short-term revenue

Question 17

Examples of tradable pollution permit schemes?

Answer 17

1) EU Carbon Emissions Trading Scheme (covers 45% of EU greenhouse gases)
2) South Korea Scheme 2015

Question 18

Benefits of carbon taxes?

Answer 18

• Internalise externality
• Raise govt revenue
• Offset other possible tax cuts

Question 19

Drawbacks of carbon taxes?

Answer 19

• Regressive
• Depends on PED
• Might damage int. competitiveness

Question 20

Benefits of provision of public goods?

Answer 20

• Fairness
• Social welfare
• Efficiency

Question 21

Drawbacks of provision of public goods?

Answer 21

• Inefficiencies
• Crowding Out
• Rising tax burden

Question 22

Examples of provision of public goods?

Answer 22

• UK national defence = Defence dept.
• UK sewer system = Environment Agency

Question 23

Benefits of provision of information?

Answer 23

• Social welfare
• Internalise externalities

Question 24

Drawbacks of provision of information?

Answer 24

• Bureaucratic costs

Question 25

Examples of provision of information?

Answer 25

- UK: Warning labels on cigarette packets - UK: Gamble Aware

Question 26

Benefits of regulation?

Answer 26

- Spur for innovation - Can solve low PED situations - Flexible

Question 27

Drawbacks of regulation?

Answer 27

- Black Market - High cost of enforcement - Discourage small, local businesses

Question 28

Examples of regulation?

Answer 28

- UK: No smoking in indoor public spaces - Speed Limits - Minimum age for alcohol