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Micro Economics - Year 1 🌸 > Governemnt Intervention > Flashcards

Governemnt Intervention Flashcards

1
Q

Government intervention on demerit and merit goods (3)

A

Tax / subsidy
Provide certain goods
Inform society of externalities - advertising

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2
Q

Gov intervention on externalities (2)

A

Tax
Subsidy

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3
Q

Aim of a tax (2+)

A

Internalise the externality
Revenue = offset effect of E = police for alcohol and drugs

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4
Q

Example of tax (4)

A

Landfill tax
Attempts to reflect social cost of using landfill = pollution
Positive - encourages recycling
Negative - encourages illegal dumpling

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5
Q

Adavantages of tax (2+)

A

Revenue
Reduced demand = reduced supply = reduced externality

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6
Q

Disadvantages of tax (3)

A

Difficult to put value on externality
If demand is inelastic - tax has no effect
Firms relocate to avoid tax

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7
Q

Why do firms use a subsidy

A

To encourage the consumption + production of merit good

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8
Q

Advantages of subsidy (2)

A

Price reduced = demand increases = more can afford it
Change preferences to chapter merit good

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9
Q

Disadvantages of subsidy (4)

A

Difficult to put monetary value on externality
Subsidy = opportunity cost
Producers get subsidy = less incentive to be efficient
Inelastic demand

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10
Q

What are price controls

A

Max and minimum prices

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11
Q

What is a max price (4)

A

Prevent market price riding above a certain level
Price ceiling
Increase consumption of merit good = makes it affordable
Below ME

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12
Q

Adavantages of max price (2)

A

Increase fairness + equality
Reduced exploitation of monopolies

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13
Q

Disadvantages of max price (2)

A

Excess demand = black market
Rationing used to allocate

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14
Q

What is a minimum price + example (4)

A

Price floor
Suppliers get fair price
Above ME
CAP - guaranteed min price for agricultural products

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15
Q

Advantages of min price (2+)

A

Producers have min income
Stockpiles = excess supply = used when supply is low or overseas aid

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16
Q

Disadvantage of min price (2)

A

Excess supply = inefficient use of resources/capital
Opportunity cost

17
Q

What is a buffer stock (3)

A

Stabilises prices and prevents shortages in supply
MP below price floor = gov buys it and stockpiles it until demand increases and price increases
MP above price ceiling = gov sells stockpiles = supply increases and price reduces

18
Q

Problem with buffer stocks (4+)

A

Min price too high = excessive purchasing to maintain min p
Storage + security of stock = expensive
Deterioration
Producers overproduce because guaranteed min price = waste of resources

19
Q

What is buffer stock theory

A

selling goods at max price will pay for buying goods at min price

20
Q

What is a state provision - reduce externalities (2)

A

Gov uses tax revenue to pay for certain g/s so they’re free when consumed
NHS, waste disposal, education, street lights etc

21
Q

Good state provision stops market failure (3)

A

Gov increase consumption with merit goods
Reduces inequality in access
Redistribution of income = tax wealthier more

22
Q

Problems with state provision (4)

A

Less incentive for firms to operate efficiently = lack of Price mechanism
Opportunity cost
Public sector = lacks innovation
Taxes higher

23
Q

Drawback to NHS (2)

A

Free at point of delivery = excess demand
Leads to long wait lists

24
Q

What is a traceable pollution permit (2)

A

Used to control pollution
Allocate permits to allow firms to emit certain level of pollution

25
Q

Rules of TPP (3)

A

Firms fined if exceed allowances
Firms can buy extra
Each year allowances reduce = incentive to lower emissions

26
Q

Adavantages of TPP(4)

A

Encourages firms to increase efficiency + pollute less
Firms with low pollution can sell allowances = money
Gov can use fine revenue
Internalises the externality

27
Q

Negative of TPP (5)

A

Difficult to set optimal level of pollution
If it’s too high = no incentive for firms to reduce emissions
Too low = new firms can’t start
Firms can relocate
Firms can buy more allowances

28
Q

Reasons for government failure (4)

A

Unintended consequences
Info gap
Administrative costs
Distortion of price signals

29
Q

What is unintended consequences

A

Misallocation of resources and net welfare loss

30
Q

Exmaple of unintended consequences (2)

A

Landfill tax to encourage recycling
Increase fly-tipping (illegal dumping) = pollution and resources needed to clear it

31
Q

What is market distortion (3+)

A

Income tax = disincentive to wrk
Subsidies = firms less deficit = remove incentive of profit
Price controls = producers overproduce because guaranteed min price = surplus

32
Q

Regulation (2)

A

Rules enforced by authorities and backed up with legislation
Control activities of C/P to change undesirable behaviour

33
Q

Exmaple of regulations (4)

A

Reduce use of demerit goods = ban or limit scale
Reduce power of monopolies = price caps
Consumer rights act = protect against info gaps
Fines

Micro Economics - Year 1 🌸 (4 decks)

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