Analysis Flashcards
(7 cards)
Indirect tax
1)Increases firms’ costs of production, suppliers earn less profit at any given price.
2)They have less incentive to supply ( supply curve shifts left from s1->s2)
3)Excess demand at the equilibrium price increases price from p1->p2. Causing a contraction of demand from Q1->Q2.
4)Reduces quantity to the social optimum (Q2) correcting the overconsumption/overproduction and correcting the market failure.
Indirect tax evaluation points
1)Difficult to put values on externalities
2)opportunity cost
3)risk of ‘black markets’
4)regressive policy (lowest incomes effected more)
5)depends on product ped
6)potentially inflationary
Subsidy
1)decreases a firms costs of production, they make more profit at any given price.
2)greater incentive to supply (supply curve shifts right s1->s2)
3)excess supply at the previous price causes the equilibrium price to decrease form p1->p2. causing an extension of demand from q1->q2.
4)increases quantity to the social optimum (Q2) correcting the underconsumption/underproduction and correcting the market failure.
Subsidy evaluation points
1)difficult to value an externalitie
2)firms may not use the subsidy to increase production/become productivky inefficient
3)opportunity cost
4)dependent on ped
Regulation evaluative points
1) inaccurate information can lead to giv failure
2) oppertunity cost
3) can be ignored / black market
4) punishment must be an effective deterant
Information provision
1) understand harm/benefit to a demerit/merit good, changing tastes and preferences.
2) reduces/increases incentive to buy, shifting demand from D1->D2.
3)lowers the equilibrium price from p1->p2 causing a contraction of supply from q1->q2.
4)Q2 is the social optimum, correcting under/over consumption and correcting the market failure.
Information provision evaluative points
1)oppertunity cost
2)can be ignored
3)may not be understood
4)info may be inaccurate
