Market failure

Question 1

Evaluating a subsidy

Answer 1

Cost? opportunity cost?
PED, if inelastic will it increase consumption by much?
Firms may become dependant on subsides, become x-inefficent reduced incentive to become more productively efficient as know protected by the state

Question 2

Evaluating indirect tax

Answer 2

PED, if inelastic will it reduce consumption significantly?
regressive nature, hit lowest incomes hardest
reduced international competitiveness
how much revenue raised? how will this be used? ( information provision, subsidise better substitute goods)

Question 3

Evaluating a minimum price

Answer 3

Creates excess supply, over produce, waste resources
fair for those who do not to pay for the irrational behaviour of others?
reduced incentive to reduce productive efficiency
lower demand lower output- creation of unemployment