Government Intervention
- Created by: meganmirabelle
- Created on: 30-01-20 12:03
View mindmap
- Government Intervention
- Subsidies
- Government support, typically financial provided to producers and occasionally consumers
- Adv
- Can support firms until they reach economies of scale
- Helps change preferences
- subsidy can cover the cost of the externality
- Disadv
- Opportunity cost, the govt revenue could be spent elsewhere
- Producers rely on the subsidy
- producer may be less efficient
- difficult to put a monetary value on the externality
- Price Controls
- Price Min
- Minimum price to give firms a guaranteed price
- Adv
- Guaranteed income for firms
- Stockpiles can be used up
- Disadv
- Excess supply
- Destroying excess is a waste of resources
- inefficient allocation of resources
- Excess supply
- Price Max
- Maximum price to ensure all consumers can afford the good
- Adv
- Increases fairness, more people are able to buy the good
- Prevents monopolies from exploiting their power
- Disadv
- Excess demand creates a black market
- Firms lose potential profit
- Price Min
- Taxation
- Placed on producers causing supply to shift left
- Incentive to stop consumption or production
- Advantages
- internalises cost of externality
- govt can use revenue to offset market failure e.g. fund healthcare to correct externalities from smoking
- Deterrent for firms to produce
- Disadv
- Difficult to put monetary value on externality
- firms may relocate abroad to avoid tax
- reduces international competitiveness
- if demand is inelastic the taxation may not be an effective deterrent
- Privatisation
- Moving from the public to private sector
- Adv
- Reduction in govt spending and resources
- encourages efficiency as firms aim to generate profit
- increases international competitiveness
- Disadv
- Risks a private monopoly
- Regulation to stop private monopolies will have a cost to be enforced
- less focus on quality as firms wish to cut costs
- More expensive for the consumers
- Risks a private monopoly
- Nationalisation
- Moving from the private to public sector
- Adv
- Achieve economies of scale
- Easily regulated
- Better catered to the country's needs
- Quality is increased as the govt isnt focused on profits
- Public sector workers are paid a fair wage
- Disadv
- Reduces competitiveness
- inefficient
- increases govt expenditure
- Regulation
- Rules enforced by authority
- Adv
- Reduces use of demerit goods
- Environmental Protection
- Reduces power of monopolies
- Disadv
- Monitoring is expensive for govt
- may not be a deterrent if the punishment isn't harsh
- Could cause firms to relocate abroad
- No effective if regulation is only in one country
- State Provision
- When the government supplies goods and services such as education healthcare and housing
- Adv
- All of society can benefit
- Reduce inequality
- redistribute income
- Disadv
- Lowers the incentive to work
- Opportunity cost, govt could spend the money elsewhere
- Pollution Caps
- Govt set optimal level and allocate permits allowing firms to emit certain amount of pollution over period of time
- Permits can be traded
- Firms are fined if they exceed the allowance
- Number of allowances is reduced each year
- Adv
- Incentive to cut emissions and become more efficient
- Internalises cost of pollution
- Low polluting firms can gain extra revenue by selling permits
- Revenue collected by govt can be used in other pollution reducing schemes
- Disadv
- Hard to put a monetary value on externality
- The fine may not be a big enough deterrent
- Subsidies
Comments
No comments have yet been made