Government Failure

Question 0

Advantages of indirect taxes to correct market failure? (3)

Answer 0

• makes both consumer and producer pay
• help to internalise the external costs while maintaining consumer choice
• tax funds raised by gov. can be used to clean up the environment (or sort out any other negative externalities caused)

Question 1

Name 7 measures a government could take to correct market failure?

Answer 1

-indirect taxation
-buffer stock schemes
-minimum prices
-subsidies
-tradable pollution permits
-extension of property rights
-regulation
MISTER B

Question 2

Disadvantages of indirect taxes to correct market failure? (4)

Answer 2

• firms can relocate to other countries with less tax on production
• demand for good or service may be price inelastic so higher tax may not reduce consumption
• indirect taxes increase CofP for firms making them less competitive with countries who have lower taxes
• difficult to quantify the cost of negative externalities like pollution

Question 3

Advantages of subsidies applied to renewable energy markets?

Answer 3

• reduce air pollution
• consumption of non-renewable resources is reduced
• encourages firms to supply renewable energy

Question 4

Advantages of tradable pollution permits? (4)

Answer 4

• pollution permits can be reduced gradually over time to slowly cut pollution
• governments can make money from selling pollution permits
• firms have an incentive to invest in clean technology
• makes cleaner firms more competitive since they don’t have to spend as much on pollution permits

Question 5

Disadvantages of tradable pollution permits? (4)

Answer 5

• if too many TPP are issued then there is little incentive for firms to reduce pollution
• if too many TPP are issued then CofP and prices can rocket making some countries incompetitive internationally
• less pressure on majorly polluting firms if they can buy more pollution permits
• cost to the gov.&taxpayer to monitor the companies pollution emissions

Question 6

What is carbon offsetting?

Answer 6

Carbon offsetting schemes allow consumers and producers to offset their carbon emission by paying for the removal of the same amount of carbon emissions elsewhere (done by replanting trees etc).