GOVT INTERVENTION POLICIES Flashcards
HOW CAN INTRODUCING INDIRECT TAXES REDUCE NEGATIVE EXTERNALITIES?
BY CHARGING PRODUCERS AN ADDITIONAL AMOUNT EQUAL TO THE EXTERNALITY, THE EXTERNALITY HAS BEEN INTERNALISED.
WHAT R THE ADVANTAGES OF INDIRECT TAXES?
- FORCES POLLUTER TO PAY AND HENCE INTERNALISE THE EXTERNALITY
- INCENTIVISES FIRMS TO INNOVATE TO AVOID TAX
- RAISES REV FOR GOVT
WHAT R THE DISADVANTAGES OF INDIRECT TAXES?
- REGRESSIVE
- MAY ENCOURAGE BLACK MARKET USE
- ASYMMETRIC INFO MAY LEAD TO THE TAX BEING SET AT THE WRONG LEVEL
- IF DEMAND IS INELASTIC, INEFFECTIVE POLICY
WHAT R THE ADVANTAGES OF MIN PRICES?
- REDUCES CONSUMPTION OF HARMFUL GOODS
- TARGETED AT GROUPS MOST LIKELY TO BE ABUSING THE PRODUCT
- NO COST TO GOVT
WHAT R THE DISADVANTAGES OF MIN PRICES?
- NO EFFECT IF SET BELOW EQUILIBIUM
- LESS EFFECTIVE WHEN DEMAND IS INELASTIC
- NO EXTRA TAX REV GAINED (+LOSS OF VAT AND EXCISE DUTY)
WHAT R THE ADVANTAGES OF REGULATION?
- ENSURES SOCIAL OPTIMUM IS REACHED
- REQUIRED IF DEMAND IS INELASTIC AND POLICIES CHANGING PRICES DON’T WORK
- CAN INCENTIVISE FIRMS TO INNOVATE E/G E-CIGARS
WHAT R THE DISADVANTAGES OF SUBSIDIES?
- PRODUCTIVE INEFFIENCY IF FIRMS RELY ON SUBSIDIES
- OPPORTUNITY COST FOR GOVT
- DIFFICULT TO QUANTIFY EXTERNAL BENEFITS WHICH MAY MEAN AMOUNT OF SUBSIDY IS INCORRECT
- MAY BE GIVEN OUT FOR POLITICAL AND NOT ECONOMIC REASONS
WHAT IS THE EXPLANATION FOR EXTENDED PROPERTY RIGHTS?
IF A RESOURCE HAS NO OWNER, ITS LIBALE TO BE OVERUSED OR ABUSED. THIS IS OFTEN CALLED THE TRAGEDY OF THE COMMONSM THE GOVERNMENT THEREFORE ADVOCATES OWNERSHIP RIGHTS OF AN AREA TO AN ORGANISATION WHO CAN CHARGE OR SUE THROUGH THE COURTS FOR THE USE OR ABISE OF THIS RESOURCE.
WHAT IS AN EXAMPLE OF RESOURCES THAT HAVE NO OWNER BEING ABUSED?
OVERFISHING IN THE SEA
WHAT R THE ADVANTAGES OF EXTENDED PROPERTY RIGHTS?
- ENSURES EXTERNALITIES R INTERNALISED.
- OWNERS CAN BE COMPENSATED
WHAT R THE DISADVANTAGES OF EXTENDED PROPERTY RIGHTS?
- DIFFICULT TO CALCULATE VALUE OF DAMAGES
- EXTERNALITIES DIFFICULT TO TRACE
- TIME TAKEN TO RESOLVE
- DIFFICULT TO USE FOR INTERNALISED ISSUES
WHAT IS THE EXPLANATION FOR TRADABLE PERMITS?
INVOLVES THE GOVT SETTING A QUOTA ON THE AMOUNT OF POLLUTION ALLOWED IN AN INDISTRY THEN ALLOCATING POLLUTION PERMITS TO INDIVIDUAL FIRMS. EACH FIRM IS ALLOWED TO POLLUTE UP TO THE LEVEL SET BY ITS PERMIT. ALSO POSSIBLE FOR FIRMS TO BUY AND SEEL PERMITS OR TO BANK THEM FOR UEE IN FUTURE.
WHAT R THE ADVANTAGES OF TRADABLE PERMITS?
- INTERNALISES EXTERNALITY
- REVENUE FOR GOVT IF AUCTIONED
- INCENTIVE TO INVEST IN CLEAN TECH
- MARKET DECIDES ON PRICE OF CARBON
WHAT R THE DISADVANTAGES OF TRADABLE PERMITS?
- DIFFICULT TO ISSUE THE RIGHT NUMBER OF PERMITS DUE TO IMPERFECT INFO OR REGULATORY CAPTURE
- HIGH COST OF MONITORING FOR GOVT PARTICULARLY FOR CARBON ASSETS IN DEVELOPING COUNTRIES
- PRICE MAY GO TOO HIHH DUE TO SPECULATION OR MARKET RIGGING BY LARGE FIRMS
WHAT R THE ADVANTAGES OF SUBSIDIES?
- ENSURES EXTERNAL BENEFITS
- LOWER PRICES FOR THE CONSUMER(INCREASED CONSUMER SURPLUS
- HIGHER PRICES FOR FIRMS ( INCREASED PRODUCER SURPLUS)
- REDUCED INEQUALITY
WHAT R THE ADVANTAGES OF MAX PRICES?
- REDUCES INEQUALITY
- STOPS EXPLOITATION OF CONSUMERS (IMPORTANT IN MONOPOLIES)
- LOW COST TO GOVT
- MIGHT ENCOURAGE MORE PRODUCTIVE EFFIENCY
WHAT R THE DISADVANTAGES OF MAX PRICES?
- SHORTAGES
- NO EFFECT IF SET BELOW EQUILIBRIUM
- NEED FOR GOVT TO ENFORCE AND MONITOR
- NO INCENTIVE TO IMPROVE QUALITY
- LESS PROFIT FOR PRODUCERS MEANS LESS INVESTMENT
WHAT R THE ADVANTAGES OF GURANTEED MIN PRICES?
- PRODUCES REASONABLE LEVEL OF INCOME FOR PRODUCERS
- STOPS FARMERS BEING EXPLOITED BY WHOLESALERS
- PROVIDES CUSHION AGAINST FUTURE SUPPLY SHOCKS
- MORE CERTAINTY ABOUT INCOME WOULD HELP FACILITATE INVESTMENT
WHAT R THE DISADVANTAGES OF GURANTEED MIN PRICES?
- NO EFFECT IF SET BELOW EQUILIBRIUM
- HIGHER PRICES FOR CONSUMERS
- MAY CREATE INCENTIVES FOR WASTEFUL EXCESS SUPPLY
- OPPORTUNITY COST TO GOVT OF BUYING EXCESS PRODUCTION
- ALLOCATIVELY INEFFICIENT (LARGE DWL)
