Paper 3: Policies Flashcards
1
Q
What are price ceilings and why are they implemented?
A
A legal maximum price for a particular good. They are usually set to make certain goods more affordable to people on low incomes.
2
Q
Pros of price ceilings
A
- quantity demanded of good increases
- price of the good is made more accessible
3
Q
Cons of price ceilings
A
- produce shortages
- generates a rationing problem
- promotes the creation of parallel (black) markets
- eliminates allocative efficiency and generates welfare loss
4
Q
What are price floors and why are they implemented?
A
A legally set minimum price. Implemented either to:
a) provide income support to farmers or producers
b) protect low-skilled, low-wage workers by offering them a minimum wage
5
Q
Pros of price floors
A
- if the govt. purchases surplus, producers will sell a greater amount than before
- as the size of the market grows, it is probable that more workers will be hired
6
Q
Cons of price floors
A
- produces surpluses (which the govt. needs to dispose of)
- promotes the creation of informal (black) markets
- eliminates allocative efficiency and creates welfare loss
- might create firm inefficiency
7
Q
What are indirect taxes and why are they implemented?
A
Implemented because:
a) they’re a source of govt. revenue
b) to discourage the consumption of demerit goods
c) to redistribute income (if imposed on luxury goods)
d) improve allocation of resources by eliminating negative externalities
8
Q
Pros of indirect taxes
A
- govt. collects revenue
- consumption of demerit goods is discouraged
9
Q
Cons of indirect taxes
A
- consumers pay a higher price for a smaller amount of the good consumed
- producers end up selling a smaller amount and receiving a lower final price
- since the market size reduces, unemployment might increase
- if imposed on necessities, they’re a form of regressive taxation
10
Q
What are subsidies and why are they implemented?
A
Granted because:
a) they increase revenue (and hence income) of producers
b) make certain goods (necessities) affordable to low-income consumers
c) encourage consumption of merit goods
d) they support the growth of particular industries
e) encourage exports of particular goods
f) improve allocation of resources by correcting positive externalities
11
Q
Pros of subsidies
A
- consumers pay a lower price and consume a greater amount of the good
- producers sell a greater amount of the good and receive a higher final price
- promotes consumption of merit goods
- the market becomes bigger, so employment will likely increase
12
Q
Cons of subsidies
A
- high cost for govt. and hence opportunity cost
13
Q
What are carbon taxes and why are they implemented?
A
A tax per unit of carbon emissions of fossil fuels. They are designed to deal with global warming, which is often a result of fossil fuel carbon emissions.
14
Q
Pros of carbon taxes
A
15
Q
Cons of carbon taxes
A
16
Q
What are tradable permits and why are they implemented?
A
The govt. sets the level of ‘admitted pollution’ per year and splits the ‘permission to pollute’ into a number of tradeable emission permits. These are allocated to individual firms, which now have a quota of emissions that they are allowed to produce. Firms that pollute less can sell their remaining quota to other firms that need to produce more.
Implemented to deal with negative production externalities.
17
Q
Pros of tradeable permits
A
18
Q
Cons of tradeable permits
A
- difficult to establish an ‘acce[table’ level of pollution
- difficult to measure a firm’s pollution production in order to establish the amount of permits per firm
- firms pay for the pollution they create but it does not lead to a reduction in pollution once the allowed limit has been set
19
Q
What is legislation and regulation and why is it implemented?
A
20
Q
Pros of legislation and regulation
A
21
Q
Cons of legislation and regulation
A
22
Q
What is collective self-governance and why is it implemented?
A
23
Q
Pros of collective self-governance
A
24
Q
Cons of collective self-governance
A
25
What is education and awareness creation and why is it implemented?
26
Pros of education and awareness creation
27
Cons of education and awareness creation
28
What are international agreements and why are they implemented?
29
Pros of international agreements
30
Cons of international agreements
31
What are nudges and why are they implemented?
32
Pros of nudges
33
Cons of nudges
34
What is government provision and why is it implemented?
Free provision from the govt. of merit good.
35
Pros of government provision
Merit goods are more easily accessible to the population.
36
Cons of government provision
- cost for the govt. might be high (opportunity cost)
- govt. might lack expertise (less efficiency + less quality of good or service)
- private firms may be dissuaded from investing in these areas
37
What is contracting out to the private sector and why is it implemented?
38
Pros of contracting out to the private sector
39
Cons of contracting out to the private sector
40
What is provision of information and why is it implemented?
41
Pros of provision of information
42
Cons of provision of information
43
What is government ownership and why is it implemented?
44
Pros of government ownership
45
Cons of government ownership
46
What are fines and why are they implemented?
47
Pros of fines
48
Cons of fines
49
What is reduction inequality of opportunities (such as investment in human capital) and why is it implemented?
50
Pros of reduction inequality of opportunities (such as investment in human capital)
51
Cons of reduction inequality of opportunities (such as investment in human capital)
52
What are transfer payments and why are they implemented?
53
Pros of transfer payments
54
Cons of transfer payments
55
What is targeted spending on goods and services and why is it implemented?
56
Pros of targeted spending on goods and services
57
Cons of targeted spending on goods and services
58
What is universal basic income and why is it implemented?
59
Pros of universal basic income
60
Cons of universal basic income
61
What are policies to reduce discrimination and why are they implemented?
62
Pros of policies to reduce discrimination
63
Cons of policies to reduce discrimination
64
What are minimum wages and why are they implemented?
65
Pros of minimum wages
66
Cons of minimum wages
67
What is contractionary monetary policy and why is it implemented?
68
What is expansionary monetary policy and why is it implemented?
68
Cons of contractionary monetary policy
68
Pros of contractionary monetary policy
69
Pros of expansionary monetary policy
70
Cons of expansionary monetary policy
71
What are contractionary fiscal policies and why are they implemented?
72
Pros of contractionary fiscal policy
73
Cons of contractionary fiscal policy
74
What are expansionary fiscal policies and why are they implemented?
75
What are policies to encourage competition (deregulation, privatisation, trade liberalisation, anti-monopoly legislation) and why are they implemented?
76
What are labour market policies (reducing power of labour unions and unemployment benefits, abolishing minimum wages) and why are they implemented?
77
Pros of expansionary fiscal policy
78
Cons of expansionary fiscal policy
79
What are incentive-related policies (cuts in personal income taxes, business taxes, capital
gains taxes) and why are they implemented?
80
Pros of policies to encourage competition (deregulation, privatisation, trade liberalisation, anti-monopoly legislation)
81
Cons of policies to encourage competition (deregulation, privatisation, trade liberalisation, anti-monopoly legislation)
82
What is education and training and why is it implemented?
83
Pros of labour market policies (reducing power of labour unions and unemployment benefits, abolishing minimum wages)
84
Cons of labour market policies (reducing power of labour unions and unemployment benefits, abolishing minimum wages)
85
What is provision of infrastructure and why is it implemented?
86
Pros of incentive-related policies (cuts in personal income taxes, business taxes, capital
gains taxes)
87
Cons of incentive-related policies (cuts in personal income taxes, business taxes, capital
gains taxes)
88
What is improving quality, quantity, and access to health care and why is it implemented?
89
Pros of education and training
90
COns of education and training
91
What is research and development and why is it implemented?
92
Pros of provision of infrastructure
93
Cons of provision of infrastructure
94
What are industrial policies and why are they implemented?
95
Pros of improving quality, quantity, and access to health care
96
Cons of improving quality, quantity, and access to health care
97
What is specialisation according to comparative advantage and why is it implemented?
98
Pros of research and development
99
Cons of research and development
100
What are tariffs and why are they implemented?
101
Pros of industrial policies
102
Cons of industrial policies
103
What are quotas and why are they implemented?
104
Pros of specialisation according to comparative advantage
105
Cons of specialisation according to comparative advantage
106
What are production subsidies and why are they implemented?
107
Pros of tariffs
108
Cons of tariffs
109
What are export subsidies and why are they implemented?
110
Pros of quotas
111
Cons of quotas
112
What are administrative barriers and why are they implemented?
113
Pros of production subsidies
114
Cons of production subsidies
115
What are free trade areas and why are they implemented?
a group of countries that agree to gradually eliminate trade barriers between themselves (there may be free trade in some products and protectionism in others), yet each country retains the right to pursue its own trad policies towards non-member countries
116
Pros of export subsidies
117
Cons of export subsidies
118
What are customs unions and why are they implemented?
A group of countries that eliminate trade barriers between members and adopt a common policy towards all non-member countries
119
Pros of administrative barriers
120
Cons of administrative barriers
121
What are common markets and why are they implemented?
A group of countries that agree to eliminate all trade barriers between them, adopt a common policy regarding trade with non-members, and agree to have free movement of factors of production between them.
122
Pros of free trade areas
123
Cons of free trade areas
124
What are monetary unions and why are they implemented?
125
Pros of customs unions
126
Cons of customs unions
127
What is the World Trade Organization and why do countries become members?
128
Pros of common markets
129
Cons of common markets
130
What are expenditure switching policies and why are they implemented?
131
Pros of monetary unions
132
Cons of monetary unions
133
What are expenditure reducing policies and why are they implemented?
134
Pros of the WTO
135
Cons of the WTO
136
What is import substitution and why is it implemented?
Increasing trade barriers on imports that compete with domestic producers, thereby encouraging domestic production (imports get substituted by domestic production), which promotes growth and development
137
Pros of expenditure switching policies
138
Cons of expenditure switching policies
139
What is export promotion and why is it implemented?
Countries attempt to achieve economic growth by expanding exports, something that they achieve by either reducing trade barriers, using subsidies, or manipulating exchange rates.
140
Pros of expenditure reducing policies
141
Cons of expenditure reducing policies
142
What is economic integration and why is it implemented?
143
Pros of import substitution
- self-sufficiency
- development of infant industries
144
Cons of import substitution
- inefficiency and resource misallocation due to lack of competition
- overvalued exchange rates
- encouragement of capital-intensive production methods
- negative impacts on employment and income distribution
145
What is diversification and why is it implemented?
Reallocation of resources into new activities that broaden the range of goods and services produced.
146
Pros of export promotion
- rapid growth
- increasing GDP per capita
- expansion into foreign markets
- emphasis on diversification
- major investments in human capital
- increased employment
147
Cons of export promotion
- exporting countries may become overly dependent on exports
- likely trade surplus
- possible exploitation of workers by MNCs
148
What is social enterprise and why is it implemented?
149
Pros of economic integration
Have the potential to provide a developing country with access to a developed country's market.
150
Cons of economic integration
- firms from the developing country are put at a comparative disadvantage because they are forced to compete with lower-cost imports from the developed country
- If many developing countries form free trade agreements with the same developed country, the advantage each hopes to gain individually is lost as they must now all compete with each other
- increased imports and only slightly increasing exports may result in trade deficits, balance of payments problems, and increasing foreign debt
- the developing country must agree to requirements that may not be in its best interests
151
What is trade liberalisation and why is it implemented?
Moving to free trade by lowering and eliminating barriers to trade.
152
Pros of diversification
- value-added production
- sustained increases in exports
- development of technological capabilities and skills
- reduced vulnerability to short-term price volatility
- use of domestic primary commodities
153
Cons of diversification
154
What is privatisation and why is it implemented?
Involves the govt. selling public assets / state enterprises to the private sector. These have often been short-run policies used by govts. that need revenue to pay off debt / provide services.
155
Pros of social enterprise
156
Cons of social enterprise
157
What is deregulation and why is it implemented?
Involves adopting supply-side policies in which the govt. reduces the number of regulations governing the behavior of firms (reducing labor power union, reducing unemployment benefits, reducing or eliminating minimum wages, etc.). The aim is to increase investment (especially inward FDI in the case of LEDCs).
158
Pros and cons of trade liberalisation
This is effective in creating economic growth, but does not (by itself) create economic development.
159
What is merit good provision (education programmes, health programmes, infrastructure) and why is it implemented?
When the government provides free merit goods. Often done to correct positive externalities.
160
Pros and cons of privatisation
Successful as a method of paying of debt, however it often results in increasing foreign ownership of domestic assets.
161
What are interventionist policies (redistribution, such as tax policies transfer payments, minimum wages) and why are they implemented?
162
Pros and cons of deregulation
Increased investment increases economic growth. Nonetheless, by its very nature, deregulation tends to not be sustainable, and so can't lead on to development.
163
What is inward foreign direct investment and why is it implemented?
Investment by firms based in one country (home country) in productive activities in another country (host country) with control of at least 10% of the firm in the host country. Firms that undertake FDI are called multinational corporations (MNCs).
MNCs undertake FDI to:
a) increase sales and revenue
b) bypass trade barriers
c) lower costs of production
d) use locally-produced raw materials
e) further their activities in natural resource extraction
164
Pros of merit good provision (education programmes, health programmes, infrastructure)
165
Cons of merit good provision (education programmes, health programmes, infrastructure)
166
What is foreign aid and why is it implemented?
Defined as the transfer of funds or goods and services to developing countries with the main objective of improving their economic, social, or political conditions.
167
Pros of interventionist policies (redistribution, such as tax policies transfer payments, minimum wages)
168
Cons of interventionist policies (redistribution, such as tax policies transfer payments, minimum wages)
169
What is multilateral development assistance (World Bank, IMF) and why is it implemented?
170
Pros of inward foreign direct investment
- MNCs can supplement insufficient foreign exchange earnings
- MNCs can supplement and improve local technical skills, management skills, and technology
- MNCs can supplement insufficient domestic savings and increase investment and new capital formation
- can lead to greater tax revenues in host country
- can help promote local industry
- MNCs can increase local employment and help lower unemployment in the host country
- can lead to higher economic growth in the host country
171
Cons of inward foreign direct investment
- environment degradation
- MNCs promote inappropriate consumption patterns in developing countries
- govt. resources might be used to build infrastructure needed by MNCs rather than poverty alleviation
- MNCs might use their economic and political power to bring about policies that work against economic development (i.e. promote overexploitation)
- negatively impacts domestic producers and infant industries
- competition might arise between developing countries and MNCs (and since MNCs usually favour characteristics that conflict with economic development, they are basically fighting to see which has worse working conditions)
172
What is improved access to banking and why is it implemented?
Can take the form of microfinance (credit/loans in small amounts to people who do not ordinarily have access to credit) or mobile banking (the use of mobile phones to receive/send money or pay bills).
173
Pros of foreign aid
- developing countries can escape the poverty cycle
- provision of basic services
- improved income distribution
- economic growth
- achievement of sustainable development goals
- debt releif
174
Cons of foreign aid
Donor countries are often motivated to provide aid either for political, strategic, or economic motives. As a result, aid funds often do not go to the countries that need them the most.
175
What is women's empowerment and why is it implemented?
promoting education, equal participation in politics, reducing violence, eliminating discrimination, etc.
176
Pros of multilateral development assistance (World Bank, IMF)
177
Cons of multilateral development assistance (World Bank, IMF)
World Bank:
- governance is dominated by rich countries
- excessive interference in countries' domestic affairs
- conditional assistance (lending)
- excessive focus on market-based supply-side policies
- inadequate attention to poverty alleviation (i.e. being too growth-oriented and investing in infrastructure problems that provide profit and return rather than in [unprofitable] development projects concerned with education and healthcare)
178
What is reducing corruption and why is it implemented?
reform institutions of tax administrations, develop high levels of transparency and independent external scrutiny, penalties and sanctions, cooperation with other countries, etc.
179
Pros of improved access to banking
- easier to get loans, insurance, and other services that help establish and run a business
- helps women expand their range of activities (e.g. leaving subsistence farming and starting a small business)
- poverty reduction
180
Cons of improved access to banking
Microfinance:
- microcredit schemes contribute to the growth of the formal economy
- interest rates in microcredit are higher than in regular banks
Mobile banking:
- network problems may cause delays
- inability of some older people to read, making them more susceptible to fraud
181
What are property rights and why are they implemented?
182
Pros of women's empowerment
- improvements in child health and nutrition (and therefore lower child mortality)
- improvements in educational attainment
- improvements in quality of human resources
- lower birth rates
183
What are land rights and why are they implemented?
184
What are property rights and why are they implemented?
185
Pros of property rights
186
Cons of property rights
187
Pros of land rights
188
Cons of land rights
