Pack 13 Flashcards
• Briefly outline why intervention might be needed to stop the environment from burning fossil fuels
Humans burn fossil fuels to power cars and other machines but burning fossil fuels releases waste gases which contribute to global warming.
Define the term ‘tradable pollution permit’
•limit firms’ carbon emissions, allowing them to exceed their pollution cap only with a permit, creating a market to address pollution.
Explain how a tradable pollution permit scheme can be used to create a market
(Pollution permits are tradable, meaning that firms can buy and sell the allowances between themselves)
Those who find it easiest and cheapest to reduce CO2 emissions can sell their permits to firms which find it difficult to reduce emissions.
Explain four benefits and four drawbacks of tradable pollution permit schemes
Benefits:
-Increase in private costs and reduction in the external cost as market is created and the price mechanism is used to internalise the external cost by making the polluter pay.
-Efficiency-much cheaper than pollution taxes for the industry.
-Revenue for government
-Incentives are made constantly to reduce emissions so permits may be sold.
Drawbacks:
-Difficult to know how many permits to allow for sale. Too many permits will lead to no real change in the markets emissions.
-Difficult to measure pollution levels. Can lead to excessive admin costs.
Define the term ‘direct controls’
Direct controls are a form of control which work outside the market system. Maximum and minimum prices are forms of this as the gov is imposing a rule that directly affects firms pricing decisions.
Use a diagram to explain how a maximum price scheme may work
Price ceiling below equilibrium price, causing excess demand and less supply.
Give at least one example of when a maximum price scheme might be used and why
Rental properties to make it affordable for everyome
Outline three pros and cons of the use of a maximum price scheme and at least two factors which the success of the scheme will depend on
Pros:
-reduces the exploitation of consumers, especially where a lack of comp exists.
-reduces income inequality e.g. a salary cap on overpaid workers.
-helps people on low incomes have higher purchasing power.
Cons:
-unintended consequences such as excess demand (shortages).
-quality of good may be reduced such as rental properties not being updated.
-people may operate illegally such as the black market.
Draw a minimum price diagram and explain how the policy works
Price floor above equilibrium price, excess supply and less demand.
Give at least two examples of markets where minimum prices might be used and why
National minimum wage for income equality.
Alcohol to reduce the risks of liver failure.
Outline three benefits and three drawbacks of the use of minimum prices
Pros:
-Producer surplus is likely to rise.
-A national minimum wage can reduce exploitation of labour while increasing incentives to work.
-Reduces the consumption of goods which are harmful and have high external costs.
Cons:
-Will effect low-income households more.
-Consumer surplus will fall.
-Excess supply may occur as the price mechanism can no longer restore the market to equilibrium.
Explain using a diagram why the price of agricultural products may be unstable
-Demand is price inelastic as food is essential
-Supply is price inelastic as crops take time to grow and some crops cannot be stockpiled for too long.
-Supply curve can shift unexpectedly due to weather conditions, pests and diseases.
Define the term ‘guaranteed minimum price scheme’
Where the surplus output created is purchased by a government agency at the minimum price. The main aim is to protect producer incomes.
Use a diagram to help you explain how guaranteed minimum price schemes work
Price floor above equilibrium price, the government buys all excess supply.
Outline at least four benefits and drawbacks of the use of guaranteed minimum price schemes
Pros:
-Food surpluses can be used as a form of International aid to developing countries
-If there is a poor harvest in future, gov has stores of food to sell onto market
-Farmer revenue rises, increasing incentives to produce food
-Price stability in crops
Cons:
-Costs the government alot of money having to buy up excess products (opp cost)
-Storage costs associated with excess stock
-Consumers must pay more for food, particularly hitting low income groups
-Excess supply
Define the term ‘buffer stock scheme’
A scheme designed to reduce price fluctuations. It involves setting a price ceiling and price floor along with the selling of stocks to maintain price within these limits.
Explain how buffer stock schemes work and what they hope to achieve
If supply is below price floor, excess supply is placed into buffer stock to allow price to be in between floor and ceiling.
If supply is above ceiling price, stock is taken out of buffer stock allowing price to be in between floor and ceiling.
Explain at least three drawbacks of the use of buffer stock schemes
-Huge storage costs
-Can be difficult to know exactly how much to buy/sell
-If several years of good harvest, huge storage costs and no chance to sell stock to raise revenue.
