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economics > Paper 3: Policies > Flashcards

Paper 3: Policies Flashcards

1
Q

What are price ceilings and why are they implemented?

A

A legal maximum price for a particular good. They are usually set to make certain goods more affordable to people on low incomes.

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2
Q

Pros of price ceilings

A
  • quantity demanded of good increases
  • price of the good is made more accessible
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3
Q

Cons of price ceilings

A
  • produce shortages
  • generates a rationing problem
  • promotes the creation of parallel (black) markets
  • eliminates allocative efficiency and generates welfare loss
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4
Q

What are price floors and why are they implemented?

A

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

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5
Q

Pros of price floors

A
  • 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
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6
Q

Cons of price floors

A
  • 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
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7
Q

What are indirect taxes and why are they implemented?

A

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

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8
Q

Pros of indirect taxes

A
  • govt. collects revenue
  • consumption of demerit goods is discouraged
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9
Q

Cons of indirect taxes

A
  • 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
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10
Q

What are subsidies and why are they implemented?

A

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

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11
Q

Pros of subsidies

A
  • 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
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12
Q

Cons of subsidies

A
  • high cost for govt. and hence opportunity cost
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13
Q

What are carbon taxes and why are they implemented?

A

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.

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14
Q

Pros of carbon taxes

A
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15
Q

Cons of carbon taxes

A
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16
Q

What are tradable permits and why are they implemented?

A

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.

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17
Q

Pros of tradeable permits

A
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18
Q

Cons of tradeable permits

A
  • 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
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19
Q

What is legislation and regulation and why is it implemented?

A
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20
Q

Pros of legislation and regulation

A
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21
Q

Cons of legislation and regulation

A
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22
Q

What is collective self-governance and why is it implemented?

A
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23
Q

Pros of collective self-governance

A
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24
Q

Cons of collective self-governance

A
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25
Q

What is education and awareness creation and why is it implemented?

A
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26
Q

Pros of education and awareness creation

A
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27
Q

Cons of education and awareness creation

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28
Q

What are international agreements and why are they implemented?

A
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29
Q

Pros of international agreements

A
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30
Q

Cons of international agreements

A
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31
Q

What are nudges and why are they implemented?

A
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32
Q

Pros of nudges

A
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33
Q

Cons of nudges

A
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34
Q

What is government provision and why is it implemented?

A

Free provision from the govt. of merit good.

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35
Q

Pros of government provision

A

Merit goods are more easily accessible to the population.

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36
Q

Cons of government provision

A
  • 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
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37
Q

What is contracting out to the private sector and why is it implemented?

A
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38
Q

Pros of contracting out to the private sector

A
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39
Q

Cons of contracting out to the private sector

A
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40
Q

What is provision of information and why is it implemented?

A
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41
Q

Pros of provision of information

A
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42
Q

Cons of provision of information

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43
Q

What is government ownership and why is it implemented?

A
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44
Q

Pros of government ownership

A
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45
Q

Cons of government ownership

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46
Q

What are fines and why are they implemented?

A
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47
Q

Pros of fines

A
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48
Q

Cons of fines

A
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49
Q

What is reduction inequality of opportunities (such as investment in human capital) and why is it implemented?

A
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50
Q

Pros of reduction inequality of opportunities (such as investment in human capital)

A
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51
Q

Cons of reduction inequality of opportunities (such as investment in human capital)

A
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52
Q

What are transfer payments and why are they implemented?

A
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53
Q

Pros of transfer payments

A
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54
Q

Cons of transfer payments

A
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55
Q

What is targeted spending on goods and services and why is it implemented?

A
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56
Q

Pros of targeted spending on goods and services

A
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57
Q

Cons of targeted spending on goods and services

A
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58
Q

What is universal basic income and why is it implemented?

A
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59
Q

Pros of universal basic income

A
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60
Q

Cons of universal basic income

A
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61
Q

What are policies to reduce discrimination and why are they implemented?

A
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62
Q

Pros of policies to reduce discrimination

A
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63
Q

Cons of policies to reduce discrimination

A
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64
Q

What are minimum wages and why are they implemented?

A
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65
Q

Pros of minimum wages

A
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66
Q

Cons of minimum wages

A
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67
Q

What is contractionary monetary policy and why is it implemented?

A
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68
Q

What is expansionary monetary policy and why is it implemented?

A
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68
Q

Cons of contractionary monetary policy

A
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68
Q

Pros of contractionary monetary policy

A
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69
Q

Pros of expansionary monetary policy

A
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70
Q

Cons of expansionary monetary policy

A
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71
Q

What are contractionary fiscal policies and why are they implemented?

A
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72
Q

Pros of contractionary fiscal policy

A
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73
Q

Cons of contractionary fiscal policy

A
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74
Q

What are expansionary fiscal policies and why are they implemented?

A
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75
Q

What are policies to encourage competition (deregulation, privatisation, trade liberalisation, anti-monopoly legislation) and why are they implemented?

A
76
Q

What are labour market policies (reducing power of labour unions and unemployment benefits, abolishing minimum wages) and why are they implemented?

A
77
Q

Pros of expansionary fiscal policy

A
78
Q

Cons of expansionary fiscal policy

A
79
Q

What are incentive-related policies (cuts in personal income taxes, business taxes, capital
gains taxes) and why are they implemented?

A
80
Q

Pros of policies to encourage competition (deregulation, privatisation, trade liberalisation, anti-monopoly legislation)

A
81
Q

Cons of policies to encourage competition (deregulation, privatisation, trade liberalisation, anti-monopoly legislation)

A
82
Q

What is education and training and why is it implemented?

A
83
Q

Pros of labour market policies (reducing power of labour unions and unemployment benefits, abolishing minimum wages)

A
84
Q

Cons of labour market policies (reducing power of labour unions and unemployment benefits, abolishing minimum wages)

A
85
Q

What is provision of infrastructure and why is it implemented?

A
86
Q

Pros of incentive-related policies (cuts in personal income taxes, business taxes, capital
gains taxes)

A
87
Q

Cons of incentive-related policies (cuts in personal income taxes, business taxes, capital
gains taxes)

A
88
Q

What is improving quality, quantity, and access to health care and why is it implemented?

A
89
Q

Pros of education and training

A
90
Q

COns of education and training

A
91
Q

What is research and development and why is it implemented?

A
92
Q

Pros of provision of infrastructure

A
93
Q

Cons of provision of infrastructure

A
94
Q

What are industrial policies and why are they implemented?

A
95
Q

Pros of improving quality, quantity, and access to health care

A
96
Q

Cons of improving quality, quantity, and access to health care

A
97
Q

What is specialisation according to comparative advantage and why is it implemented?

A
98
Q

Pros of research and development

A
99
Q

Cons of research and development

A
100
Q

What are tariffs and why are they implemented?

A
101
Q

Pros of industrial policies

A
102
Q

Cons of industrial policies

A
103
Q

What are quotas and why are they implemented?

A
104
Q

Pros of specialisation according to comparative advantage

A
105
Q

Cons of specialisation according to comparative advantage

A
106
Q

What are production subsidies and why are they implemented?

A
107
Q

Pros of tariffs

A
108
Q

Cons of tariffs

A
109
Q

What are export subsidies and why are they implemented?

A
110
Q

Pros of quotas

A
111
Q

Cons of quotas

A
112
Q

What are administrative barriers and why are they implemented?

A
113
Q

Pros of production subsidies

A
114
Q

Cons of production subsidies

A
115
Q

What are free trade areas and why are they implemented?

A

a group of countries that agree to gradually eliminate trade barriers between themselves (there may be free trade in some products and protectionism in others), yet each country retains the right to pursue its own trad policies towards non-member countries

116
Q

Pros of export subsidies

A
117
Q

Cons of export subsidies

A
118
Q

What are customs unions and why are they implemented?

A

A group of countries that eliminate trade barriers between members and adopt a common policy towards all non-member countries

119
Q

Pros of administrative barriers

A
120
Q

Cons of administrative barriers

A
121
Q

What are common markets and why are they implemented?

A

A group of countries that agree to eliminate all trade barriers between them, adopt a common policy regarding trade with non-members, and agree to have free movement of factors of production between them.

122
Q

Pros of free trade areas

A
123
Q

Cons of free trade areas

A
124
Q

What are monetary unions and why are they implemented?

A
125
Q

Pros of customs unions

A
126
Q

Cons of customs unions

A
127
Q

What is the World Trade Organization and why do countries become members?

A
128
Q

Pros of common markets

A
129
Q

Cons of common markets

A
130
Q

What are expenditure switching policies and why are they implemented?

A
131
Q

Pros of monetary unions

A
132
Q

Cons of monetary unions

A
133
Q

What are expenditure reducing policies and why are they implemented?

A
134
Q

Pros of the WTO

A
135
Q

Cons of the WTO

A
136
Q

What is import substitution and why is it implemented?

A

Increasing trade barriers on imports that compete with domestic producers, thereby encouraging domestic production (imports get substituted by domestic production), which promotes growth and development

137
Q

Pros of expenditure switching policies

A
138
Q

Cons of expenditure switching policies

A
139
Q

What is export promotion and why is it implemented?

A

Countries attempt to achieve economic growth by expanding exports, something that they achieve by either reducing trade barriers, using subsidies, or manipulating exchange rates.

140
Q

Pros of expenditure reducing policies

A
141
Q

Cons of expenditure reducing policies

A
142
Q

What is economic integration and why is it implemented?

A
143
Q

Pros of import substitution

A
  • self-sufficiency
  • development of infant industries
144
Q

Cons of import substitution

A
  • inefficiency and resource misallocation due to lack of competition
  • overvalued exchange rates
  • encouragement of capital-intensive production methods
  • negative impacts on employment and income distribution
145
Q

What is diversification and why is it implemented?

A

Reallocation of resources into new activities that broaden the range of goods and services produced.

146
Q

Pros of export promotion

A
  • rapid growth
  • increasing GDP per capita
  • expansion into foreign markets
  • emphasis on diversification
  • major investments in human capital
  • increased employment
147
Q

Cons of export promotion

A
  • exporting countries may become overly dependent on exports
  • likely trade surplus
  • possible exploitation of workers by MNCs
148
Q

What is social enterprise and why is it implemented?

A
149
Q

Pros of economic integration

A

Have the potential to provide a developing country with access to a developed country’s market.

150
Q

Cons of economic integration

A
  • firms from the developing country are put at a comparative disadvantage because they are forced to compete with lower-cost imports from the developed country
  • If many developing countries form free trade agreements with the same developed country, the advantage each hopes to gain individually is lost as they must now all compete with each other
  • increased imports and only slightly increasing exports may result in trade deficits, balance of payments problems, and increasing foreign debt
  • the developing country must agree to requirements that may not be in its best interests
151
Q

What is trade liberalisation and why is it implemented?

A

Moving to free trade by lowering and eliminating barriers to trade.

152
Q

Pros of diversification

A
  • value-added production
  • sustained increases in exports
  • development of technological capabilities and skills
  • reduced vulnerability to short-term price volatility
  • use of domestic primary commodities
153
Q

Cons of diversification

A
154
Q

What is privatisation and why is it implemented?

A

Involves the govt. selling public assets / state enterprises to the private sector. These have often been short-run policies used by govts. that need revenue to pay off debt / provide services.

155
Q

Pros of social enterprise

A
156
Q

Cons of social enterprise

A
157
Q

What is deregulation and why is it implemented?

A

Involves adopting supply-side policies in which the govt. reduces the number of regulations governing the behavior of firms (reducing labor power union, reducing unemployment benefits, reducing or eliminating minimum wages, etc.). The aim is to increase investment (especially inward FDI in the case of LEDCs).

158
Q

Pros and cons of trade liberalisation

A

This is effective in creating economic growth, but does not (by itself) create economic development.

159
Q

What is merit good provision (education programmes, health programmes, infrastructure) and why is it implemented?

A

When the government provides free merit goods. Often done to correct positive externalities.

160
Q

Pros and cons of privatisation

A

Successful as a method of paying of debt, however it often results in increasing foreign ownership of domestic assets.

161
Q

What are interventionist policies (redistribution, such as tax policies transfer payments, minimum wages) and why are they implemented?

A
162
Q

Pros and cons of deregulation

A

Increased investment increases economic growth. Nonetheless, by its very nature, deregulation tends to not be sustainable, and so can’t lead on to development.

163
Q

What is inward foreign direct investment and why is it implemented?

A

Investment by firms based in one country (home country) in productive activities in another country (host country) with control of at least 10% of the firm in the host country. Firms that undertake FDI are called multinational corporations (MNCs).

MNCs undertake FDI to:
a) increase sales and revenue
b) bypass trade barriers
c) lower costs of production
d) use locally-produced raw materials
e) further their activities in natural resource extraction

164
Q

Pros of merit good provision (education programmes, health programmes, infrastructure)

A
165
Q

Cons of merit good provision (education programmes, health programmes, infrastructure)

A
166
Q

What is foreign aid and why is it implemented?

A

Defined as the transfer of funds or goods and services to developing countries with the main objective of improving their economic, social, or political conditions.

167
Q

Pros of interventionist policies (redistribution, such as tax policies transfer payments, minimum wages)

A
168
Q

Cons of interventionist policies (redistribution, such as tax policies transfer payments, minimum wages)

A
169
Q

What is multilateral development assistance (World Bank, IMF) and why is it implemented?

A
170
Q

Pros of inward foreign direct investment

A
  • MNCs can supplement insufficient foreign exchange earnings
  • MNCs can supplement and improve local technical skills, management skills, and technology
  • MNCs can supplement insufficient domestic savings and increase investment and new capital formation
  • can lead to greater tax revenues in host country
  • can help promote local industry
  • MNCs can increase local employment and help lower unemployment in the host country
  • can lead to higher economic growth in the host country
171
Q

Cons of inward foreign direct investment

A
  • environment degradation
  • MNCs promote inappropriate consumption patterns in developing countries
  • govt. resources might be used to build infrastructure needed by MNCs rather than poverty alleviation
  • MNCs might use their economic and political power to bring about policies that work against economic development (i.e. promote overexploitation)
  • negatively impacts domestic producers and infant industries
  • competition might arise between developing countries and MNCs (and since MNCs usually favour characteristics that conflict with economic development, they are basically fighting to see which has worse working conditions)
172
Q

What is improved access to banking and why is it implemented?

A

Can take the form of microfinance (credit/loans in small amounts to people who do not ordinarily have access to credit) or mobile banking (the use of mobile phones to receive/send money or pay bills).

173
Q

Pros of foreign aid

A
  • developing countries can escape the poverty cycle
  • provision of basic services
  • improved income distribution
  • economic growth
  • achievement of sustainable development goals
  • debt releif
174
Q

Cons of foreign aid

A

Donor countries are often motivated to provide aid either for political, strategic, or economic motives. As a result, aid funds often do not go to the countries that need them the most.

175
Q

What is women’s empowerment and why is it implemented?

A

promoting education, equal participation in politics, reducing violence, eliminating discrimination, etc.

176
Q

Pros of multilateral development assistance (World Bank, IMF)

A
177
Q

Cons of multilateral development assistance (World Bank, IMF)

A

World Bank:
- governance is dominated by rich countries
- excessive interference in countries’ domestic affairs
- conditional assistance (lending)
- excessive focus on market-based supply-side policies
- inadequate attention to poverty alleviation (i.e. being too growth-oriented and investing in infrastructure problems that provide profit and return rather than in [unprofitable] development projects concerned with education and healthcare)

178
Q

What is reducing corruption and why is it implemented?

A

reform institutions of tax administrations, develop high levels of transparency and independent external scrutiny, penalties and sanctions, cooperation with other countries, etc.

179
Q

Pros of improved access to banking

A
  • easier to get loans, insurance, and other services that help establish and run a business
  • helps women expand their range of activities (e.g. leaving subsistence farming and starting a small business)
  • poverty reduction
180
Q

Cons of improved access to banking

A

Microfinance:
- microcredit schemes contribute to the growth of the formal economy
- interest rates in microcredit are higher than in regular banks

Mobile banking:
- network problems may cause delays
- inability of some older people to read, making them more susceptible to fraud

181
Q

What are property rights and why are they implemented?

A
182
Q

Pros of women’s empowerment

A
  • improvements in child health and nutrition (and therefore lower child mortality)
  • improvements in educational attainment
  • improvements in quality of human resources
  • lower birth rates
183
Q

What are land rights and why are they implemented?

A
184
Q

What are property rights and why are they implemented?

A
185
Q

Pros of property rights

A
186
Q

Cons of property rights

A
187
Q

Pros of land rights

A
188
Q

Cons of land rights

A

economics (14 decks)

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