Government Intervention Flashcards
What ways are taxes beneficial?
Taxes can help to reduce wealth inequality e.g. progressive taxation
Taxes can be used to incentivize/decentivise use behavior - reduce external costs of production/consumption
Taxes increase government revenue therefore allows them to increase spending into public sectors/pay off debt//fund alternate policy to use in combination e.g. subsidies
What are negatives of taxes?
Taxes can be extortionate and reduce motivation to work/grow - decreases competition
Taxes can be evaded due to complex laws around the world
Taxes decrease disposable income/output slow down economic growth/GDP
Price inelastic demand not effective in reducing consumption
How are subsidies beneficial?
Helps businesses expand - increase output/GDP - employ more workers
Cuts cost of production therefore helps to keeps prices low increase consumption
Helps businesses from collapsing in a recession
Long term receive this money back in taxes e.g. corporation/income
Reduce/increase external costs/benefits
How are subsidies negative
Very costly to the government
Opportunity cost - can be spent better // borrowed increases interest on national debt-tax rise/cuts on spending
May take time to have an effect
AO4 - Depends on if subsidy is used well/how, firms may become dependent on subsidy decrease productivity long run
- not effective in affecting consumption of price inelastic goods
How are fines effective?
Good incentive to promote good behavior /reduces external costs
Can save lives and protect other citizens
Provides government with extra revenue
Why may fines not be effective?
Fines are not effectives on people who discard the importance/value of money - they may easily afford it.
How is regulation positive?
Allows protection of consumers
Gives structure and security within an economy
Bans, limits, compulsory - reduce negative externalities
What are the disadvantages of regulation?
Can be very costly to implement and monitor - may not have resources to enforce effectively
Does not benefit all firms - small businesses may loose out - cost of regulation discourage small/reliant firms leads to less competition in markets
AO4 - more effective in if demand unresponsive to price change // to avoid unintended consequences - cause of government failure if regulation too strict (unemployment,firms leaving country, black market) expand
- high cost of enforcement and weak penalties regulation may be ineffective firms afford it
- regulation must be set right/enough limit for it to be effective in solving problem e.g. pollution
- alternative pollution permit more fair on all firms
Summary - costly to enforce, right regulation important - to be effective // unintended consequences cause market failure // not fair on all firms // any alternative
Define regulation
A set of rules/laws/limits, typically imposed by the government that seeks to modify/determine the behavior of firms and organizations
Define pollution permits
Pollution permit is an allowance given by the governments to firms allowing them to pollute up to a certain amount
Advantages of pollution permits
Reduces pollution - reduces external costs/negative externalities
Can help to control sector where pollution is strong
Tradable incentive to sell spare permits for profit
Encourages companies to use and invest in green technology which results in more sustainable growth (long term incentive when permit prices rise )
Negatives of pollution permits
The government may not give permits fairly to firms
May result in government failure (economic inefficiency due to policy) - e.g. difficult to measure external costs which may result in them giving too many out/being too lenient as they have imperfect information
Unintended consequences of too few permits cost of production too high, leave country carbon leakage, shut down, higher prices may be inflationary
Developing countries may struggle with enforcement/administration very costly
