Y1 The market mechanism, market failure and government intervention in markets Flashcards
Negative production externalities
Have negative spill-over effects on third parties as a result of production. (fossil fuel energy, transport, farming, landfill, plastic waste)
Why are goods over/under consumed/produced
Consumers/producers only consider PC and PB and ignore externalities so over/under consume/produce.
Market failure
Misallocation of resources
Examples of negative production externalities
Methane from landfill
CO2 from fossil fuels - global warming
Microplastics
Smell and noise
Reduced house prices
Policies to reduce landfill
Waste and landfill tax - means that it’s beneficial to recycle instead. However causes fly tipping - gov failure.
Positive production externalities
Positive spill-over effects on third parties from production. (Medical research, planting forests, flood protection)
Demerit good
Harms the consumer and third parties
(Cigarettes, gambling, fizzy drinks)
Merit good
Good for consumer and third parties
(vaccine, education, renewable energy)
Solutions to merit goods
Legislation
Gov provision
Improved info
Subsidy to producers
Max price
Solutions to demerit goods
Tax
Improved info
Legislation
Advertising bans
Incentives to quit (vouchers for smoking)
Pros and cons of NHS
Pros:
Based on need not wealth - equality
Not profit driven, so provides expensive medicine
Cons:
Some pay without needing
More expensive=more tax
Underfunded - not x-efficient and waiting lists
Result of NHS being free
Surplus of demand as it has no price but has cost, allocatively efficient, quite productively and dynamically but not X.
Behavioural economics
Attempts to understand the effect of individual psychology on economics
Nudges
Feature in an environment that influences decision making (salad in front of burgers, smaller portions)
Public goods
Non-excludable and non-rivalrous, must be provided by gov because free-rider problem. They are complete MF.
Types of goods
Public
Quasi public - Can be excludable/rivalrous but aren’t always (fishing, parks, roads)
Private - Excludable and rivalrous
Types of poverty
Absolute - Num of people below income threshold or unable to afford basic goods
Relative - The extent that a household falls below average
Income inequality in UK
Richest 20% are 7.2x as wealthy as bottom 20% (income gap)
Harm of inequality
Life expectancy
Child wellbeing
Unsociable behaviour
Causes of relative poverty
Unemployment
Single parenthood
Single pensioners
Health problems/disabilities
Poverty trap
Policies to reduce inequality
Increase top rate income tax
Increase personal allowance
Raised min wage
Better education and FSM to those in poverty trap
Universal credit
Wealth linked with income
Linked to income as it is turned into wealth or assets can provide income, but can be hard to get house even with good income and can have house but no income(pensioner)
Wealth inequality in UK
- More unequal than income
- Inheritance tax has many loopholes
To reduce:
- Loans with flexible payment
- Auto enrollment of pensions
Government failure
When gov tries to solve a MF but the policy instead deepens it or creates a new one
(fly tipping)
Types of immobility
Occupational - Lack of transferable skills
Geographical - Inability to work because can’t move and unable to work in current place of residence(high housing costs, bad broadband)
