market failure Flashcards
neg pro ext: indirect tax short run
cost of production increase
neg pro ext: indirect tax long run
incentives for producers to use less polluting or non-polluting energy sources
neg pro ext: indirect tax adv [4]
- immediate effect
- tax revenue collected
- reduce monitoring cost (vs gov regulation)
- externality internalised
neg pro ext indirect tax disadv [4]
- not effective to decrease market quantity under price inelastic demand
- increase income disparity
- technical difficulties in calculating tax
- might increase tax evasion
neg pro ext indirect tax diff stakeholders [5]
- from consumer pov
- loss- price paid is higher market quantity
- producer
- short run- price received PP and market quantity decrease- total revenue decrease
- ps decrease area
- long run - incentive to improve: reduce the cost, improve technology or diversify production
- renewable energy
- increase long run competitiveness
- government
- increase tax revenue - workers
- demand decrease → W decrease and decrease employment - society- good
- improve allocative efficiency
neg pro ext tradable permits short run
the higher cost from trade permits will increase the MPC
neg pro ext tradable permits long run
- gives incentives to producers to switch to less polluting resource
- MSC decreases
- lower cost of production
- earning extra by selling the extra permits
neg pro ext tradable permits adv [4]
- immediate effect
- incentive to firms
- no monitoring cost (vs gov regulation)
- externality internalised
neg pro ext tradable permits disadv [3]
- not effective to decrease market quantity under price inelastic
- increase income disparity
- administrative procedure and cost to arrange the system
neg pro ext gov reg adv [4]
- no technical difficulties
- effective to reduce the market quantity even under price inelastic demand
- less cost
- comparatively to subsidy (consumption only)
———
pos con ext - increase income equality
- everyone pay same
- poor and rich face the same price reduction
- it takes higher percentage of the income of the poor than the rich
- poor benefit relatively more than the rich
neg pro ext gov reg disadv [5]
- additional cost to enforce + no tax revenue
- design of legislation is time consuming
- black market and illegal trading
- ## political constraintspos pro ext
- increase income disparity
- face same increase in price
neg pro ext education adv [five]
- long term habit change
- no technical difficulties
- effective to reduce the market when ped inelastic
- increase income equality
- producer revenue based on consumer demand
neg pro ext education disadv [4]
- takes long time to achieve effect
- increase gov expenditure
- ## consumers being ignorantpos con ext
- increase income inequality
- unequal access to education
- reinforcing systematic biases
neg pro ext ad adv [6]
- producer revenue based on consumer demand
- comparatively less cost used
- avoid the technical difficulties in taxations
- effective to reduce the market quantity even under price inelastic demand
- increase income equality
- long term habit change
neg pro ext ad disadv [4]
- consumers being ignorant
- takes time to amend in the long term
- increase government expenditure + no tax revenue
- producers lose: decrease in total revenue + production surplus
pos pro ext subsidy adv [3]
- immediate effect
- increase the income equality
- poor and rich face the same price increase - no monitoring cost
pos pro ext subsidy disadv [three]
- not effective to increase the market quantity under price inelastic demand
- increase government expense
- technical difficulties
pos pro ext direct provision adv [two]
- effective under price inelastic demand
- improve income equality
pos pro ext direct provision disadv [2]
- time consuming
- increase gov expense
neg con ext indirect tax stakeholder perspectives [5]
- consumer
short run: loss
- market price increase quantity decrease
- consumer surplus decrease
long run: gain
- improve health
- improve productivity → high income
- beneficial - producer
short run: loss
- price received PP and market quantity decrease- total revenue and producer surplus decrease
long run: gain - incentive to improve: reduce the cost, improve technology or diversify production
- renewable energy
- increase long run competitiveness
- total revenue and producer surplus decrease
- government- increase tax revenue
- workers
- demand decrease → W decrease and decrease employment - society- good
- improve allocative efficiency
public good- direct provision pros [2]
- government sole decision
- enjoy economies of scale
public good- direct provision cons [three]
- not profit orientated
- increase government budget pressure
- technical difficulties
contracting production to private sector with protection from the government pros [4]
- increase innovation and quality of goods and services under competition
- less cost
- more advanced technology
- flexible
contracting production to private sector with protection from the government cons [3]
- if competition is on cost -> cut cost
- no accountability form government
- government having less control over quantity of goods provided
indirect tax vs
gov reg
carbon tax vs
gov reg
tradable permits vs
gov reg
education vs
indirect tax
can compare [6]
- speed
- gov budget
- ped
- income disparity
- technical difficulties
- monitoring cost
sipping grape pop in the market
subsidy vs
gov reg
public goods: consider [2]
quality of goods, gov budget deficit
under what situation gov should provide public goods [3]
- budget pressure is small
- quality requirement of good is low
- government cannot help private firm to define private property rights
negative and positive externalities because of
self interest
demerit and merit goods because of
information failure
merit public goods
free rider and non-profitable
common pool resources
self interest (tragedy of the commons)
