Market failure 2024 Flashcards
New intervention on vaping
- tax on vaping products; amount of tax paid per ml increases with increasing nicotine content
- vaping ban come into force early 2025
- reduce use of flavour to attract kids, plain packaging, move vapes behind counter ; link to bounded self control and rationality
Evaluate intervention for vaping
- vaping initially used as quit tool for heavy smokers as cigarettes contain tobacco tar and carcinogens
Why else are vapes bad
- materials and chemicals used to make vapes including their lithium batteries make them difficult to dispose of safely.
- only 17% of vapers recycle them
- 5 mill disposable vapes thrown away each week
black market for addictive gods
- black market cigarettes in uk worth £2bn a year
- black market alcohol in uk is worth £1.8bn due to alcohol duty and regulation
Effects of EU common agricultural policy
- British farmers received £2.1bn in direct subsidies from EU cap policy in 2016
- large sums of money for farmers to leave land aside to avoid problems of excess supply
- huge waste of resources
- before this, EU gov were buying excess butter milk and other products and stockpiling it
- EU common fisheries policy is a quota to deak with overfishing yet dead fish are being thrown back into water as people exceed their catch quota
Examples of imperfect information gap causing government failure with diesel cars
- gov found info in 2016 that diesel cars are net worse for the environment than petrol counterparts aso they increased taxes on them, remove incentives to purchase them and will phase them out by 2030
External costs of vaping
- Fire risks are also associated with their unsafe disposal or inappropriate mixing with the recycling stream due to the lithium batteries they contain
- Disposable vapes littered cause visual pollution also dangerous chemicals entering the environment through soil - links to negative externality of pollution
- raw material extraction to build a vape causes pollution
- young people regularly using it report nosebleeds, headaches and sore throats (private costs)
Effects of a tax on vapes
- tax would raise £500m by FY28-29
- Risk that a gov ban would create a black market costing the government, opportunity cost of policing a ban is high relative to their effects on consumption
- vape levy will by paid by manufacturer making the habit less affordable
- addictive so inelastic demand, thus people continue to purchase it
- use in combination with moving behind counter and plain packaging to lessen addictiveness so policy improves as demand becomes less inelastic
How might we prevent a black market for vaping
Tougher fines for businesses who break the law by underage selling (as with cigarettes the minimum aga is 18). Trading standards suggest the incidence of this is about one third of businesses and is also regularly seizing lorry loads of counterfeit and illegal vapes from shops across the country, as well as at Channel ports (pointing to a thriving ‘Black Market’)
External costs and benefit of plastic
- 5 million tnnes of plastic used a year approx, half of which is packaging
- non-biodegradable, ending up in a landfill or litter in natural environment causing visual pollution but also damaging habitats
- pollute soils rivers and oceansm harming animals living in these areas
- external benefits; contributtes to food safety and hygiene, reduces packaging weight in transit thus reducing energy and emission generated by using other materials
Plastic tax intervention
- Uk plastic packaging tax of april 2022
- plastic packaging manufactured or improted intoUK whihc doesnt have at least 30% recycle material charged a tax of £200 a tonne
- will increase recycled content in packaging by 40%
- aimed at producers not user
effects of a plastic tax
- CRP (cost rev prof) of plastic manufacturers
- CRP of recycling/substitute good companies
- effects of end users; is their consumer surplus and thus economic welfare change
- gov revenue increase
Essay plan of likely effects of a plastic tax
KAA1: corrects external costs (state one).
- Tax on manufacturers will increase variable costs and lead to ceteris paribus an increase IN AC and MC
- negative externality a diagram
- dep on PED for final product, will cause a fall in profits so financial incentives for firms to lower amount of plastic used or switch
- SWITCH to material with > 30% recycled content so they avouid the £200 per tonne tax
EVAL:
- although it internalises some external costs,
argue that it is product with mixed externalities e.g reduced food waste and better food hygiene so tax ignores external benefits
- light material, reduces transport and energy emissions so costs of transport lowerred and passed on
- set tax too high, excessive adminstrative costs of enforcing tax
KAA2:
- tax raises prices for final consumer. Tax will increase costs for producers thus cuasin inward shift in supply (indirect tax diagram or CPR revenue for a monopoly dhowing increase in MC AND AC SO NEW HIGH PRICES)
- if PED is low, firms pass on tax to consumers then firms pass on the tax costs to consumers
- retail prices of processed ready meals rise along with other food cuasing regressiveeffect on distribution of income
- worsenes existing income inequalities
- if prices rise, producers still not being penalised
EVAL2:
- prices will rise short term but in thr long run tax encourages manufacturers to recycle plastic and switch to sustainable packaging like compostable materials
- if alternative suppliers increase production and achieve EOS, price of plastic substitutes fall so prices acc fall and less plastic used
- depends on PES of spply if businesses supplying sustainable packaging; if low then sustainable packaging prices bid up
final reasoned judgement of plastic tax
- likely to be msot effective when packaging comes from domestic sources bu risk of gov failrue for imported plastic packaging bc Uk biz may decide that costs of complying are too high
- in the long run a mix of intervention is needed to cut plastic use
- tax relief on R and D as nestle and starbies shpw social corporate responsibilit by investing money in new materials with lower plastic footprint
What is a windfall tax and where was it imposed
- The Energy Profits Levy, introduced as a response to soaring profits in May 2022, raised £2.6bn in its first year.
- The windfall tax on oil and gas companies has been extended by a year - until March 2029
- A windfall tax is a levy imposed by a government on companies that have benefited from something they were not responsible for
