Economics - Chapter 9
- Created by: sammilaw
- Created on: 18-02-15 18:22
View mindmap
- 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)
Comments
No comments have yet been made