Microeconomics - market failure & Government intervention

Question 1

Indirect tax analysis real world example

Answer 1

• when analysing indirect tax a useful fact to have in there is evidence that an indirect tax actually works. For example, the use of sugar tax implemented in 2018 which reduced the consumption of sugary drinks successfully.

Question 2

Indirect tax - depends upon the PED/Reggresive tax supported evaluation

Answer 2

• Consumption of demerit goods such as alcohol, unhealthy foods, cigarettes and general demerit goods are consumed more by lower socioeconomic groups –> addictive –> more price inelastic PED –> increase income inequality???

Question 2

Subsidies real world example

Answer 2

• For example, the UK government implmented various renewable energy subsidies to increase production and encourage consumption.
• Consumer perspective: Green Homes grant scheme in 2020 –> partly to encourge those on lower incomes to implement solar panels.
• Producer perspective: Firms given grants to increase renewable energy making it more profitable to do so.

Question 3

Direct State Provision Analysis - Real world example

Answer 3

• In the UK, public healthcare is provided via direct state provision in the form of the NHS.

Question 4

Direct State Provision - Excess demand supported Evaluation

Answer 4

• An example in the UK of where direct state provison has failed due to underfunding is social care services for the elderly and disabled population.
• This sector has had cronic underfunding leading to increased wait times and quality of care.

Question 5

Information Provision analysis real world example

Answer 5

• For example, a successful information provision campaign in the UK is change4Life implemented by public health England to encourage a healthier lifestyle through exercise and diet.
• This helped at changing attitudes and raising awareness of health issues.

Question 6

Information Provision Supported Evaluation real world example

Answer 6

• In 2007, the department of health set of a “know your limits” information provision campaign to inform the public about alcohol consumption.
• However, this largely failed due to a variety of reasons including the message ambiguity. It was difficult to understand alcohol limits and apply them, the use of terms like “units” was confusing to a lot of people.

Question 7

Privatisation - Real World examples

Answer 7

• In 2013, the UK government privatised royal mail fully.
• British Gas and British Telecoms are another example of privatisation.

Question 8

Privatisation - example of it being successful

Answer 8

A case study of privatisation being successful is BT. This was successful for a variety of reasons:
* Increased competition: There were higher levels of competition from the privatisation of BT, this led to lower prices and increased product innovation.
* There was also greater efficiency in the market e.g improved productivity, less beauracracy (red tape)

Question 9

Privatisation - example of it being unsuccessful

Answer 9

The privatisation of railway in the UK in the mid 1990s is arguably unsuccessful for a variety of reasons - the rationale being to increase efficiency and boost competition, this did not occur:
* Higher fare prices: this led to fare prices rising faster than inflation –> exclusion
* Safety concerns of deregulation that came with privatisation: concerns about the safety of the industry when being privatised e.g the Hatfield Rail crash of 2000.