T8 - gov intervention Flashcards
What is it
Regualtory action taken by the gov to seek changes of desciosn made by poeple and firms about social and eco matters
Reasons for gov in
Correct MF
Improve distrubution of incoem and wealth
Imrove eco performance
What will gov intervene on
Public goods
Prinicpal agent problem
Info failiure
Inequality
Monopoly power
Macro instability
Moral hazard
Factor immobility
Externalitles
Demerit and merit goods
What is pricniple agent problem
where the pricnipal has oen objective andthe agent has another, plsu info assytmetery causing a cofnlcit of inetrest
Pro free market view of gov intervension
Price fucntion allocates best
Competition is key
Only some int on shit liek pub goods
Inetrvnsionist view on gov reg
Gov is needed to reduce marker failiure, no other option
Gov intervention methods
Subsidse
Tax
Regulation
Information
Permits
Price regualtion
State Provision
What is a max/min price
Where firms cant go above/below these prices
When will gov impose max price
When not happy with equilibrium
What does max prices and min prices do
Creates excess demand and supply
Black markets
adv on max price
consumer welfare
monopoly power
competition
merit goods
dis adv of max price
Excess demand
lack of supply
black markets
adv of min price
incentives to producer
fuck demrit goods
dis advof min price
too high prices
regressive and inequality
black markets
inneficincy adn complacency
eval of max and min prices
elasticities?
inc inequaltiy?
set at teh right level
black marktes
when will a min price have little impact
when below free market equilibrium
What are subsidise
Payment to consumers or firmss
Purpose of subsidise
To reduce to cost of prodyctuon or consumption (shift supply curb to the right)
When are subsidise used
For merit goods or psotive extenality
What is a direct subsidy
Straight to the consumer boosting demand
What si a guarnetteed payemnt
min price
What is an input subsidy
for costs of prodcution
How is total spendign on a subsidy calculated
Susbsidy price per (ON SUPPLY LIEN AT NEW MARKET EQUILBRIUM) unit multiplied by leevl of output
When there is inelastic demadn what happens to the subsidy
It has a larger effect on equilibrium price
Impact fo subsidy for producer
Inc revenue
Impact fo subsidy for consumer
Lower prices, higher qtty
Pros of subsidy
Helps firms
Increased demand
Macro conflict
Merit goods
Arguments against subsidise
Is it fair, who is aided
Costly to governemnt
distort market mechansim
Encourages innefficny
Evalautions of subsidy argyments
Productivity and efficny?
Who pays for the cost of it
Will firms pass onto onsumer
Gov failiure
What is taxation
Fee charged by the gov onicnoem or activity
Purpose fo tax on negatiev xxternaltiies
make consumers/producers pay the full social cost
Adv of tax on MF
Source of tax revenue
Changes prices to true prices
Dis adv fo tax on MF
Unfair
Regressive adn inquality
black markets
laffer affect
macro clash
what can be said to be a good positive thing for taxes
gov can get inc tax revenue to correct more MF
eval fo tax
elastsicity of demand?
regressive?
what is the level set at determined by?
will it causes inneffciny?
how can any increase in price be regressive
those on lower incoems will pay mroe, those on higher nto affected as much
What is a tradeable permits
A permit that allows owners to produce a certain amount fo say pollution , which then if unsued can be traded to anothe rpolluter
adv of permits
incetive to ecplore other methods
fair for firms
lowers market failirue
can be sold ebtween firms
cons of permits
high admin costs
rich can just buy
black markets
eval of permit
who gets how much?
can firms afford fines of not following?
affect comp?
will firms just lie?
What is state provision
Gov finances the prodcution of a raneg of goods through taxation then provides them for nearly free to consuemrs or for free
adv of state proviso
equitable
social optimum level
reduce ineuality
cons of state aid provision
costly to gov
what are the two methdos not incldued in teh STRIPPS acronym
privatisation and nationalisation
Reasons for why gov Should interve
Equality
Provision of public goods
Education
Shift consumer behaviour
Portects enviroment
Reduce monopoly power
Strategic planning of infrastrtcure
Dis adv of gov intervntion
Gov failiure
Lack on incetives
Less choice
Impac perspnal frreedom
Adv of free market economy
Efficent allocation of scarce resoruces
Comeptitiev prices
Inovation and inevtnion
Profit motive
Comepetiton
how may govs inetevene to correct factor mobility mf
education and training
how may gov intevene to correct mf of public goods
state provision
how may gov intevrent to deal with oc of demerit
rasising prices
makign consuemr more aware
how may gov ineteven to deal with uc of emrit goods
reducing prices
makign consumer more aware
how to know whcih gov int method to talk about
go through STRIPPS and say whetehr implementign or removign the method woudl affect shit
eg woudl rising taxes on demrit goods do shit
how may the gov itnervent of inperfect ifno
info
regulation
how may the gov itnervene on relative povery and ineuqality
reducing prices
regualtion on labour markets
how may the gov deal with monopoly power causign mf
comp policy
regualtion
price regualtion
subsidse to new firms
how to deal with inforamtion failirue
inc suppl of information
inc education
regualtion on advertising
indsutey standards
how to icnrease demadn for ifnoramtion
lower cost of it
maek it publci good
simplify it
evalatuion fo governemtn regualtion
comp and efficncy effect
enforced proeplry and regualtoruy capture
what about other methods
when are there no chocies but to regualte
with firms such as natrual monopolies
gov firms
woth regards to the firm adn type of market what si teh eval for regualtion
what type fo firm is ti, what good are they providing, hwo comeptitiev si the market,
with regards to vested ifnleucne what is the evalatuion for regualtion
will it be biased and swayed by publci pressure groups, poltiicans and cosnumers
example of when taxes woudl be sued
when the prices of shit is too low really
on sn profits
when woudl susbdise be used
when mf causes to high prices and underproduction
when would regaltion be used
too high prices
lack fo competition
info failiure
labour markets
when woudl degregulation be used
protmote comeption
when woudl ifnormation be used
for mf where there is a lack of shit
comeptition
dealign with assytmetries
factor immoviloty
when woudl max prices be used
equilibrium price is too high for social optimum level
when would min prices be used
when there is too low of an equilibrium price for social optimium level
when would permits be used
when shti liek regaultion,t axes and other methods are just shite
when would state prvosion be used
for shit that there is a lack of in a free market
when would nationalisation be used
monopoly power
to high costs in private sector
when woudl privatisation be sued
lack of effcinecy
costly on budget
what can icn reguaktion and anythign that causes firsm to experience lower demand or higher price cause
greater innovation from firms
