Paper 3: Policies Flashcards
What are price ceilings and why are they implemented?
A legal maximum price for a particular good. They are usually set to make certain goods more affordable to people on low incomes.
Pros of price ceilings
- quantity demanded of good increases
- price of the good is made more accessible
Cons of price ceilings
- produce shortages
- generates a rationing problem
- promotes the creation of parallel (black) markets
- eliminates allocative efficiency and generates welfare loss
What are price floors and why are they implemented?
A legally set minimum price. Implemented either to:
a) provide income support to farmers or producers
b) protect low-skilled, low-wage workers by offering them a minimum wage
Pros of price floors
- if the govt. purchases surplus, producers will sell a greater amount than before
- as the size of the market grows, it is probable that more workers will be hired
Cons of price floors
- produces surpluses (which the govt. needs to dispose of)
- promotes the creation of informal (black) markets
- eliminates allocative efficiency and creates welfare loss
- might create firm inefficiency
What are indirect taxes and why are they implemented?
Implemented because:
a) they’re a source of govt. revenue
b) to discourage the consumption of demerit goods
c) to redistribute income (if imposed on luxury goods)
d) improve allocation of resources by eliminating negative externalities
Pros of indirect taxes
- govt. collects revenue
- consumption of demerit goods is discouraged
Cons of indirect taxes
- consumers pay a higher price for a smaller amount of the good consumed
- producers end up selling a smaller amount and receiving a lower final price
- since the market size reduces, unemployment might increase
- if imposed on necessities, they’re a form of regressive taxation
What are subsidies and why are they implemented?
Granted because:
a) they increase revenue (and hence income) of producers
b) make certain goods (necessities) affordable to low-income consumers
c) encourage consumption of merit goods
d) they support the growth of particular industries
e) encourage exports of particular goods
f) improve allocation of resources by correcting positive externalities
Pros of subsidies
- consumers pay a lower price and consume a greater amount of the good
- producers sell a greater amount of the good and receive a higher final price
- promotes consumption of merit goods
- the market becomes bigger, so employment will likely increase
Cons of subsidies
- high cost for govt. and hence opportunity cost
What are carbon taxes and why are they implemented?
A tax per unit of carbon emissions of fossil fuels. They are designed to deal with global warming, which is often a result of fossil fuel carbon emissions.
Pros of carbon taxes
Cons of carbon taxes
What are tradable permits and why are they implemented?
The govt. sets the level of ‘admitted pollution’ per year and splits the ‘permission to pollute’ into a number of tradeable emission permits. These are allocated to individual firms, which now have a quota of emissions that they are allowed to produce. Firms that pollute less can sell their remaining quota to other firms that need to produce more.
Implemented to deal with negative production externalities.
Pros of tradeable permits
Cons of tradeable permits
- difficult to establish an ‘acce[table’ level of pollution
- difficult to measure a firm’s pollution production in order to establish the amount of permits per firm
- firms pay for the pollution they create but it does not lead to a reduction in pollution once the allowed limit has been set
What is legislation and regulation and why is it implemented?
Pros of legislation and regulation
Cons of legislation and regulation
What is collective self-governance and why is it implemented?
Pros of collective self-governance
Cons of collective self-governance
What is education and awareness creation and why is it implemented?
Pros of education and awareness creation
Cons of education and awareness creation
What are international agreements and why are they implemented?
Pros of international agreements
Cons of international agreements
What are nudges and why are they implemented?
Pros of nudges
Cons of nudges
What is government provision and why is it implemented?
Free provision from the govt. of merit good.
Pros of government provision
Merit goods are more easily accessible to the population.
Cons of government provision
- cost for the govt. might be high (opportunity cost)
- govt. might lack expertise (less efficiency + less quality of good or service)
- private firms may be dissuaded from investing in these areas
What is contracting out to the private sector and why is it implemented?
Pros of contracting out to the private sector
Cons of contracting out to the private sector
What is provision of information and why is it implemented?
Pros of provision of information
Cons of provision of information
What is government ownership and why is it implemented?
Pros of government ownership
Cons of government ownership
What are fines and why are they implemented?
Pros of fines
Cons of fines
What is reduction inequality of opportunities (such as investment in human capital) and why is it implemented?
Pros of reduction inequality of opportunities (such as investment in human capital)
Cons of reduction inequality of opportunities (such as investment in human capital)
What are transfer payments and why are they implemented?
Pros of transfer payments
Cons of transfer payments
What is targeted spending on goods and services and why is it implemented?
Pros of targeted spending on goods and services
Cons of targeted spending on goods and services
What is universal basic income and why is it implemented?
Pros of universal basic income
Cons of universal basic income
What are policies to reduce discrimination and why are they implemented?
Pros of policies to reduce discrimination
Cons of policies to reduce discrimination
What are minimum wages and why are they implemented?
Pros of minimum wages
Cons of minimum wages
What is contractionary monetary policy and why is it implemented?
What is expansionary monetary policy and why is it implemented?
Cons of contractionary monetary policy
Pros of contractionary monetary policy
Pros of expansionary monetary policy
Cons of expansionary monetary policy
What are contractionary fiscal policies and why are they implemented?
Pros of contractionary fiscal policy
Cons of contractionary fiscal policy
What are expansionary fiscal policies and why are they implemented?