CH 24 Government intervention Flashcards
How might the government deal with externalities?
-Taxation
-Subsidies
-Fines
-Regulations
-Pollution permits
What are the advantages of using taxation to deal with externalities on consumers, producers, and the government?
Consumers: Less consumption, leading to less external costs
Producers: increasing cost of production, leading to less external costs
Government: Raised revenue that can be used to fund other programmes
What are the disadvantages of using taxation to deal with externalities on consumers, producers, and the government?
Consumers: The effectiveness of the tax depends on the PED of the good
Producers: Make some workers redundant as output falls due to increased cost of production
Government: It creates illegal markets as consumers try to avoid the tax
What are the advantages of using subsidies to deal with externalities on consumers, producers, and the government?
Consumers: Lower prices and increase demand for goods with positive externalities
Producers: Can be targeted to help specific local industries
Government: Helps achieve environemental aims
What are the disadvantages of using subsidies to deal with externalities on consumers, producers, and the government?
Consumers: Subsidies may disproportionately benefit higher-income consumers
Producers: Can discourage firms from being more competitive or efficient as they rely on government funds
Government: Money could’ve been spent elsewhere, opportunity cost
What are the advantages of using fines and regulations?
-They can target specific industries
-Individuals or firms could be fined or imprisoned for breaking the rules
-Helps reduce external costs
-Fines can generate government revenue
-Regulations that impose fines can act as a strong deterrent
What are the disadvantages of using fines and regulations?
-Regulating laws require the government to hire more people
-Regulations can be difficult to enforce, as it is hard to determine wether someone is breaking the law or not
What are the advantages of pollution permits?
-Encourages firms to switch to greener production meothods in the long run
-Raises the governments revenue due to sales of pollution permits
What are the disadvantags of pollution permits?
-Firms relocate production to places where they can pollute without limit
-It is difficult and expensive to monitor emissions
-Firms may pass this higher production cost to the customers
-Firms might cheat to hide thier emissions
How could the government promote competition and prevent anti compedetive practices?
-Encouraging the growth of small firms
-Deregulation to lower barriers of entry
-Privitisation
-Limiting monopoly power
How could the government intervene in the labour market?
-By setting a minimum wage
Why should a minimum wage be set by the government?
-Disadvantaged workers get more money, raising their income and decreasing the wage gap
-As incomes rise, workers will pay more tax, therefore the government will gain more revenue
-Boosts in productivity
