govt efficiency Flashcards
methods to solve neg prod ex
- indirect tax
- regulations
- property rights
- pollution permits
indirect taxes production ex
tax=mec
its must internalise externality
1. hard to know monetary value whats price unpolluted if less then market failure is not sovled if more then disincentive of business relocate
2. if tax inelastic incidence on customer
3. international competitiveness export less
regulation neg ex
regulation come from govt bodies
setting standards that restrict the amount waste that can be legally dumped
need to regulate and inspect the company are enforced.fines force to close
eg limit on carbon particles emit from the exhaust fumes
deregulation efficient firm low prices and polluting firms leave
property rights
owner decided the way his assets are used
1. polluting firms has property rights who are affected could pay the polluter to reduce the scale of activity and therefore the pollution polluter would payment equal to the loss of profit.
2. affected by negative externalities are have property rights, then a polluting firm may be sued In principle the charge would be equal to the marginal external cost
pollution permits
market based solution as they can be bought and sold
China’s Emission Trading Scheme (ETS)
The government ‘caps’ the total amount of carbon which can be emitted by industry
it then creates a carbon market (‘trade’) where emitters can
buy and sell emission credits.A firm that reduces its emissions will
have spare credits can then sell to firms who have exceeded their carbon allowance
supply fixed d increase price rise US reduces fixed suupply higher price
if d falls recesiion in EU low price so solution supply less
neg consumption ex
- indirect tax
- price control
- provison of info
- production quotas
min price, provison info, prod qouts
minimum prices - high-sugar energy drinks
and tobacco products such as cigarettes
MPB = MSC price rise until it BUT PED inelastic
provison info graphic img on tobaccos, nutritional content in energy drink
production quotas limiting the quantity of
goods that is produced. If the quota is set at a low level, the price of the
product is likely to rise, reducing the amount consumed. Licensing
suppliers is also used to control supply BUT informal dealings
prod positive ex
subsidy the subsidy will reduce the price of the product and lead to an increase in demand.
provision of information.
firms, governments statistics on
industrial costs, prices and export opportunities. The positive production
externality is that firms can use this information when making business
decisions.
For consumers, an information campaign can improve education on a particular issue, such as how to avoid spreading a
disease or how to encourage more recycling of household waste
positive consumption ex
subsidy
legislation make state-funded education compulsory up to a certain age
info better choices
govt grants
nudge theory
influence choice by nudging indicsuals to make effective decisions
might lead to a more efficient allocation
of resources by presenting choices in a better way, people make better
decisions.freedom to choose
achieving beneficial economic and
social outcomes without the need for regulations
benefits of cycling
airlines to make these consumers aware of the damage their flights are causing
Sweden concentrated on ‘nudging’ people to be responsible to delay
the spread of the virus COVID
why govt intervene
- socially desirable Wider economic benefits. Government provision of merit goods quality of human capital can have a positive impact of the rate of
economic growth - Imperfect information.Families who have limited incomes dont pay for education Providing education free of charg
- Positive externalities. other dont get diseases
why nationalisation
The market failure when the industry is not being run in the public interest
1. natural monopoly no sense to have more than one provider of rail/water supply Duplication only leads to inefficiency and higher price. Rails positive externalities esp in New Delhi, Hong Kong and Kuala Lumpur for trafic
2. coal water electricity strategic industries and their externalities can be best managed under state ownership.
3. structure of their costs means that they are loss-making.
Government subsidies are needed to maintain service levels
why privatisation
- It is maintained
that breaking up a state monopoly will produce a better, more efficient
allocation of resources be accountable to shareholders - It is also
believed that costs and consumer prices will be lower due to
competition in the market.
BUT The
private monopolist has market power to raise prices and restrict output
Government failure
govt intervene to correct market failure but leads to net loss of welfare
1. imperfect info
2. unintended consequence
3. policy conflict
imperfect info
imperfect info value of externality like monetary vale not equal MEC T will lead to the wrong production and an even greater inefficiency
- also road pricing If the charge is set too high or too low then there will be a misallocation of resources
- lack information about the consumer demand for a merit good such as free healthcare no precendent wrong amt misallocation
unintended consequence
unintended consequence
- High marginal rates of income tax or too high unemployment benefit can create disincentives for people to work harder so infficeicy
- politician remain govt retain power rather than to try to ensure maximum economic efficiency eg road pricing is
a very unpopular tax in the eyes of car users, despite to reduce congestion and hence correct market failure loss of electoral votes
policy conflit
- If the tax is on domestic
fuel, then older members of society may bear the greatest effect as they
use proportionately more fuel for heating than others in society increasing inequality in society - subsidies on the costs of fossil fuels keeps jobs but sustainable not
-Deregulation of markets in air lowr prices increases pollution
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