1.4 - gov intervention Flashcards
(38 cards)
1.4.1 [gov intervention]
what are property rights?
-refers to the ability -in law- to hold a good as belonging to you
-must be compensated for land’s use
-used in major infrastructure projects
-fundamental to capitalist system
why do we need property rights?
-if you can’t allocate it, it becomes an issue of how to deal with it
-leads to disputes
-if PR not clear, can lea to overuse as it isn’t clear who owns what
coase theorem?
-market based solutions to externalities
1-clear, established property rights
2 - low transaction costs
-particularly effective in areas such as tradeable pollution permits
applying coase theorem?
-let market determine price
-naturally internalise externality = doesn’t overproduce
-need well defined property rights to get an efficient outcome
-revealed preference
transaction costs?
-how easy it is
-how do you know how much to tax?
gov intervention in markets?
-use tax to deal with negative externalities
-can subsidise so much it becomes a free-provision
maximum price analysis?
[graph in notes]
-rationing function of price not allocating correctly
-excess demand = misallocation of FOP–> shortage of supply –>prevent monopolies from exploiting consumers
-a max price must be set below normal free market equilibrium to have any effect on price and output
minimum price analysis?
-excess supply –> misallocation of resources
-reduce access to alcohol prices
-don’t want a loss leader
-set on goods with negative externalities
1.4.2 [gov failure]
when does gov failure occur?
-occurs when the result of gov intervention in the economy results in a net loss of economic welfare
-social costs of intervention is greater than the social benefits
what can bad policies cause?
1-policies may have damaging long-term effects for the economy or society
2-policies may be ineffective at meeting their stated aims
3-may create more losers than winners
-seen as inefficient allocation of resources
[1.4.1]
ad valorem taxation?
Ad valorem taxes are taxes calculated as a percentage of the price of a good or service.
The purpose of imposing ad valorem taxes is to internalize external costs (negative externalities) or generate government revenue.
specific taxation?
Specific taxes are fixed amounts per unit of a good or service.
They are often used to target specific industries or products.
Specific taxes can also be imposed to address negative externalities or generate revenue.
what are subsidies and what is there overall aim?
Subsidies are financial assistance provided by the government to encourage the production or consumption of certain goods or services.
Subsidies aim to correct market failures by promoting the provision of public goods, correcting positive externalities, or supporting strategic industries.
what are maximum prices?
Maximum prices are government-imposed limits on the price of a good or service.
They are typically set below the equilibrium price to protect consumers from high prices.
example of a maximum price?
[price ceilings]
Example: Rent control policies in cities like New York and San Francisco impose maximum rents to make housing more affordable for low-income residents.
minimum prices? [price floors]
Minimum prices are government-imposed limits on the price of a good or service.
They are typically set above the equilibrium price to support producers, ensuring they receive a fair income.
example of a minimum price?
Example: The U.S. government sets a minimum price for milk to ensure that dairy farmers receive a reasonable income.
other methods of government intervention: trade pollution permits?
Tradeable pollution permits are a market-based approach to reducing pollution.
Governments allocate a limited number of permits to firms, allowing them to emit a certain amount of pollution.
Firms can buy and sell permits, creating incentives to reduce emissions efficiently.
example of trade pollution permits?
Example: The European Union’s Emissions Trading System (EU ETS) allows companies to trade carbon emissions permits, encouraging the reduction of greenhouse gas emissions.
Other Methods of Government Intervention; state provision of public goods?
Governments provide public goods, which are non-excludable and non-rivalrous.
Public goods are typically funded through taxation.
Example: Public goods like national defence, street lighting, and public parks are provided by governments to benefit all citizens.
Other Methods of Government Intervention; provision of information?
Governments often provide information to consumers to ensure informed decision-making.
Information provision can improve market efficiency and protect consumers.
Example: Food labeling regulations require manufacturers to provide information about ingredients and nutritional content on food packaging, helping consumers make healthier choices.
Other Methods of Government Intervention; regulation?
Regulation involves government rules and standards to ensure market participants follow specific guidelines.
It can address issues like safety, environmental protection, and consumer rights.
why is it important to understand the importance of gov intervention?
It is essential for analysing the impact of government policies on markets and economic outcomes.
These interventions are often designed to correct market failures, ensure fairness, and promote public welfare.
[1.4.2 - gov failure]
what is government failure?
Government failure occurs when government intervention in markets or economic activities leads to an outcome that reduces overall economic welfare.
It is the opposite of the intended improvement or correction of market failures.
