sdsda Flashcards
What are evaluation points on taxes?
Politically unpopular
Black market
Effectiveness of those with an inelastic demand curve is limited
Near impossible to quantify the MEC
Cost of implementing enforcing
Needs to have effective consequences
Inequality
What does government failure result in
A net welfare loss to society
What is a minimum price?
a price floor below which the price of a good or a service is not allowed to decrease.
What are the negatives of monopolys?
There is a loss of welfare (consumer surplus falls)
Can worsen inequalities
Competition is generally accepted as desirable
What are some benefits of monopolies?
Economies of scale, international competitiveness
What is indirect tax?
tax imposed on producers (suppliers) by the government
What is the evaluation of price floors?
Creates a surplus
“dumping” may occur
Inelastic PED
Costly for government to enforce, monitor
To be effective, the pmin must be above the market clearing price
What is partial market failure?
It is where a market exists but contributes to recourse misallocation
When in the incidence of tax high?
When most of the tax is added to the consumer
When demand is price inelastic
What is occupational immobility of labour?
As patterns of demand and employment change, many workers may find it difficult to secure new jobs, since they lack the necessary skills
What does complete market failure result in?
A missing market (street lights national park)
What is a merit good?
A good that would be under-consumed in a free market, as individuals do not fully percieve the benefits obtained from consumption
What is marginal private cost?
The cost to an individual or firm of an economic transaction
What are the 7 main causes of recource misallocation?
Positive and negative externalities
Merit and demerit good
Public goods
Monopoly and market imperfection
inequalities in the distribution of income and wealth
factor immobility causing unemployment
imperfect informations
What is a quasi-public good?
a good that has some of the qualities of a public good but does not fully possess the three required characteristics of non-rivalry, non-excludability and non-rejectability.
What are negative externalities?
a negative spillover effect to third parties of a market transaction; social costs exceed private costs.
What do merit goods usually generate
Positive externalities
What usually happens to merit goods?
Usually subsidised and funded by governments
What is a monopoly?
A market structure dominated by a single seller of a good
Why are subsidies on producers politically unpopular?
Money could be spent elsewhere, especially if it is a higher profit making firm, might lead to high taxes
What is marginal social benefit?
the full benefit of an economic transaction, including private and external benefits
What are externalities?
Costs or benefits that spillover to third parties to a market transaction
What are positive externalities?
a positive spillover effect to third parties of a market transaction; social benefits exceed private benefits.
Where does welfare loss point to?
The social optimum
What is a subsidy?
A subsidy is any form of government support (financial) offered to producers and consumers
What is the total amount of the subsidy per good for producers on a subsidy graph?
P1P2QSO
What are the two immobilitys of factors of production?
Occupational immobility of labour
Geographical immobility of labour
What is direct tax?
Tax on income
What is asymetric information?
The supplier knows more information than the consumer usually
What is income?
Money from a job
What is wealth?
Wealth is owned assets
What is a public good?
A good that posseses the characteristics of non-excludability, non-rivalry in consumption and is non-rejectable.
What is a price ceiling?
the maximum amount a seller can charge for a good or service
What is a pure monopoly?
Where only one firm supplies the market
What is the incidence of tax?
The proportion of tax passed onto the consumer
What do monopolys do
Restrict supply and raise the price
What are the two types of taxes
Direct and indirect tax
What is dumping?
Selling at a low price to developing countries,
What is marginal external cost?
The spillover cost to third parties of an economic transaction
What does non-excludability mean?
once provided, no person can be excluded from benefitting
What is marginal social cost?
The full cost to society of an economic transaction, including private and external costs.
What is MSC
MPC + MEC
What is marginal private benefit?
The benefit to an individual or a firm of an economic transaction
What are the causes of government failure?
Imperfect information
Conflicting objectives
Caused by political self interest
Disincentives
Policy myopia
What is geographical immobility of labour?
Where workers find it difficult to move to where employment opportunities may be, due to family ties and differences in housing costs.
What does non-rivalry mean?
consumption of the good by one person does not reduce the amount of available for consumption by another person
What are non-payers?
non payers can enjoy the benefits of consumption at no financial cost to them
known as free riders.
What are free-riders?
A person or organisation which recieves benefits that others have paid for without making any contribution themselves
What is a missing market?
A situation in which there is no market because the functions of price have broken down.
What is excess supply?
When the quantity supplied at a particular price is greater than quantity demanded, there is disequilibrium
Why is subsidising the producer encouraging inefficiency?
Firms may now lack the incentive to keep costs low
What is welfare loss?
Net welfare loss is the lost welfare as a result of too much or too little production and consumption of a good or resource.
When is welfare gained?
When the output is at socially optimum level
What does non-rejectable mean?
if a public good is provided, we cannot avoid it
What is marginal external benefit?
The spillover benefit to third parties of an economic transaction
What is MSB?
MPB + MPC
When is welfare lost?
When the output is at free market level. Because there is under consumption
What is the evaluation on subsidies for producers?
Costly for the government to implement (opportunity cost)
Effectiveness is limited arguably on those with inelastic PED
Difficulty quantifying externality
Politically unpopular
Encourages inefficiency
What is the evaluation for subsidising consumers?
Politically unpopular/ popular depending on if you get the subsidy
PES (short vs long run)
Difficult to calculate the MEB
Raise price of the good
What is the problem with state provision?
its expensive. Opportunity costs. Pressures on the govt budget. places burden on taxes, already taxes. conflictting objectives
What is government failure
When government intervention to correct market failure does not improve the allocation of recources or leads to worsening of the situation
What is policy myopia?
WHen politicians look for short term solutions to difficult economic problems rather than making considered analysis of long term considerations
What are the causes of government failure? 2
Imperfect information
Administrative costs
Unintended consequences
Why is inequality a market failure?
Opportunity cost of benefits
Negative externality arising from homelessness and poverty
Policing
Lower income earners pay less tax, use more in terms of government services
When does market failure occur?
Market failure occurs when the free market, left alone, fails to deliver an efficient allocation of recources
What is administrative costs?
Where the costs exceed benefits gained
Value for money
