Evon Plus Dal: All Of Government Interventio

Question 1

What is indirect tax?

Answer 1

A tax that can increase a firms cost or production but can be transferred to the consumer as a higher price

Question 2

Explain how you would show a shift on a negative production externalities graph if there was a tax like carbon taxes imposed

Answer 2

It would be a usual negative production externalities graph

You would shift the MPC curve to the left to show

1. Rising prices
2. New equilibrium at Qsoc

MSC=MPC

Question 3

What does a tax increase for a firm?

Answer 3

Cost of production

Question 4

How would you draw a graph showing an indirect tax on a demerit good/ negative consumption externalities graph?

Answer 4

It shows the correction of the market failure

MPC curve shifts left as MPC+tax

Price would rise

Quantity shifts left

Question 5

What does an indirect tax do? Chain

Answer 5

Increases cost of production
Internalises externalities (polluter pays)
Solved overconsumption/ production issue
Promotes allocative efficiency
The tax also generates government revenue

Question 6

What can government revenue be used for?

Answer 6

Education
Advertisement
Funding alternative policies
Subsidising merit good
Funding rehabilitation for demerit goods

Question 7

What are the major issues with using indirect taxation to fix market failure?

Answer 7

Price inelastic demand (demand needs to be elastic for the sensitivity of the response in the change in price to be effective)

The idea that the government has perfect information (they may set the tax at the wrong level. This is a ludicrous assumption because it would be impossible to set it at the perfect level to internalise the externalities)

Can be regressive (taking a bigger part of the poor income in comparison to the rich. If they over tax they can promote income inequality)

Formation of black markets

Question 8

What is the issue of the government setting the taxation level too high?

Answer 8

Formation of black markets

Smuggling

Dangerous

People don’t know what’s in the products they are consuming

Question 9

What is the value of the cigarette and alcohol black market in the UK?

Answer 9

Cigarettes £2bn
Alcohol £1.6bn

Question 10

What do black markets need?

Answer 10

They need a lot of policing which is another form of market failure as it costs

Question 11

What can indirect taxation be describe as and why?

Answer 11

Paternalistic

The government are forcing us to do what they want

Saying there’s a problem

We have to pay higher prices

Because they know all

This infringes freedom of choice

Question 12

What is regulation?

Answer 12

It’s a non market based approach where a rule or law is enacted by the government that must be followed by economic agents to encourage a change in behaviours

Question 13

What type of approach is regulation in comparison to subsidies and taxation?

Answer 13

Non market base approach with command and control

Question 14

What are the commands in regulation?

Answer 14

Bans

Limits in age

Caps on emissions

Compulsory vaccines compulsory designs on cigarettes

Innovative regulations

Time limits on when alcohol can be sold

Question 15

What is controls in regulation?

Answer 15

Control (enforcement)

Punishment (an incentive to follow the regulation eg fines bans jail)

Question 16

What is the aim of regulation?

Answer 16

To incentive change in behaviour

Solve issues in the free market

Allocative efficiency and welfare gains

Question 17

What are the negatives of regulation?

Answer 17

The cost (enacting the regulation, administration costs, enforcement of the regulation eg policing) if the government can’t afford the cost then the regulation is going to be weak and insufficient at fulfilling its responsibilities

Setting the right regulation (right level, right strictness, with an incentive to follow it)

Black markets forming

Unintended consequences (massive impact on profitability for firms may cause them to go abroad)

Equity (unfair on some firms)

Question 18

What can regulation be described as?

Answer 18

Paternalistic

Very forceful from the government

Lack of freedom choice and liberty

Question 19

Who enacts completion policy?

Answer 19

CMA (competition and market authority)

Question 20

Who oversees the EU completion policy?

Answer 20

ECC (European competition commission)

Question 21

What is the overall aim of completion policy?

Answer 21

The public interest is being protected from exploitation

Question 22

Examples of competition policy?

Answer 22

Preventing excessive pricing
Promoting competition
Ensure quality standards and choice
Regulating natural monopolies
Promoting technological innovation

Question 23

Reasons why competition policy may be enacted?

Answer 23

Antitrust and cartel agreements in oligopolies due to collusion

Investigating mergers (in the uk if a firm controls over 25% of the market it will be searched)

Liberalise concentrated markets

Monitoring state aid control

Question 24

In the EU what’s an example of a subsidy?

Answer 24

Agricultural sector

Common agricultural policy scheme is a huge subsidy given to farmers to ensure competition in different countries

Question 25

What is price regulation?

Answer 25

government intervention to control the price of goods and services to prevent market failure, protect consumers, or ensure fairness

Question 26

What are the two types of price regulation?

Answer 26

Price ceilings
Price floors

Question 27

What are the two types of price regulation?

Answer 27

Price ceilings
Price floors

Question 28

What are the advantages and disadvantages of a price ceiling?

Answer 28

Aims to make essential goods/services affordable (e.g., rent controls, food prices).

Disadvantages:
Shortages (quantity demanded exceeds supply).

Black markets may arise.

Reduced incentives for producers to invest or supply.

Question 29

What are the advantages and disadvantages of a price floors?

Answer 29

Common in agriculture (e.g., minimum wage, guaranteed crop prices).

Disadvantages:
Surpluses (supply exceeds demand).

Government may need to buy excess supply, creating inefficiency.

Question 30

Reasons for regulation?

Answer 30

Market failure (e.g., monopoly exploitation or externalities).

Protecting vulnerable consumers.
Encouraging fairness or income redistribution.

Ensuring long-term stability (e.g., preventing excessive inflation).

Question 31

Overall evaluation of price regulation?

Answer 31

Advantages:
Protects consumers from exploitation.
Ensures affordability of necessities.
Supports producer income (in the case of price floors).

Disadvantages:
Creates inefficiencies (e.g., surpluses or shortages).
Distorts market signals, leading to resource misallocation.
Can harm smaller producers or consumers in unintended ways.

Question 32

Real worlds examples of price ceilings and price floors?

Answer 32

Price ceilings: Rent controls in New York.

Price floors: Minimum wage laws, EU Common Agricultural Policy.