Taxes and Subsidies Flashcards
What is the governments role
Advocate for social welfare
Correct market failures, e.g from imperfect information and externalities .
How are policy instruments usful
they can internalise externalities thereby closing the gap between social and private equilibria
What are the 3 main groups of policy instrument
traditonal, market-based and innovative
give examples of market based policy instruments
taxes and trade permits
What is a tax
Tax is an amount of money that an individual has to pay to the government to finance government spending
What is a subsidy
grant given by the government to cover the cost of producing more efficient white goods
give an example of a direct tax
income tax
give example of indirect tax
vat, petrol tax
What is an indirect tax
Indirect taxes come from our expenditure
What is deadweight loss
Deadweight loss is a reduction in total surplus that results from a market distortion, such as a tax. It is a loss of economic efficiency.
If the supply curve is inelastic, will consumers or suppliers receive the greater burden of the tax
suppliers
If the demand curve is inelastic, will consumers or suppliers receive the greater burden of the tax
consumers
What are the effects of subsidies
promotes production
increases consumer surplus
increases producer surplus
negative effect on government budget
what is the least-cost theorem of pollution control
it is the result of the necessary condition for abatement which is that marginal cost of abatement be equalised over all abaters
when will a firm purchase additional permits
when the marginal cost of abating emissions exceeds the permit price
