Economics - Chapter 9

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  • Created on: 18-02-15 18:22
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  • Economics - Chapter 9
    • Government intervention in markets
    • Reasons for intervention:
      • Correct market failure
      • Improve economic performance
      • Achieve a more equal distribution of income and wealth
    • Financial intervention
      • Indirect taxes - to increase prices of demerit goods
      • Subsidies
      • Tax relief - i.e. reduction in corporation tax promotes investment in capital equipment etc.
      • Changes to taxation and welfare payments - i.e. increase benefits for the poor as a way of distributing equal wealth
    • Other types of intervention:
      • Regulation
      • Pollution permits
      • Correcting information failures i.e labelling cigarettes
      • Max/min price interventions
      • Buffer stocks
      • Regulating and controlling monopolies
    • Causes of government failure:
      • Political self-interest
      • Regulatory capture (interest in helping producers rather than consumers)
      • Disincentive effects (i.e. higher income tax > disincentive to work longer hours)
      • Policy decisions based on imperfect information
      • The law of unintended consequences (i.e. increased tax > increased tax avoidance)
        • Costs of administration and enforcement
      • Conflicting objectives
      • Political myopia (quick fixes)
  • Political myopia (quick fixes)


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