Externalities

Question 1

What 3 ways can the gov correct a negative externality

Answer 1

Indirect tax
Regulation
Tradable permits

Question 2

What is an indirect tax

Answer 2

A tax per unit of output, which therefore increases the business’ private costs and shifts the s(mpc) curve inwards

Question 3

What is regulation

Answer 3

Laws which restrict or prevent altogether (ban) production processes that produce harmful externalities

Question 4

What is a tradable permit

Answer 4

Overall limit of production - permits that can be bought and sold

Question 5

What 3 ways can the gov fix a positive consumption externalities

Answer 5

Subsides
Direct provision
Legislation

Question 6

What is direct provision

Answer 6

When the gov pays for something and makes it free

Question 7

What is a legislation (correction)

Answer 7

When the gov makes something compulsory to do e.g school

Question 8

What is a subsidy

Answer 8

When the gov pays firms to produce