government intervention and failure

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  • government intervnetion
    • maximim and minimum prices - a max prie are set on good with positive externalities, a min orice is set on negative externalities to reduce consumotion
    • tradeable pollution permits - allows the owner to pollute up to a specific amount, copanies have ti buy permits, unused permits can be sold and companies excedding thier permts will face legal action
      • advantages - fall in pollution, raise gov revenue, green tech, encourages efficiency
      • disadvtntages- expensice to monitor and police, raise costs, hard to know how mant permits should be allowed
        • advantages - prevent exploitation of consumers, overcome market falure
          • disadvantages - laws may be expensive, regulatory capture, may pass on costs to consumers, reduce innovation
    • state provision of goods - gov provide public goods due to the free rider problem
      • advantages - corrects market failure, equality, benefits of the good eg healthcare
    • when there is assmetric info gov provides info or forces companies to provide info so people can make informed decisions
    • subsidy- solve positive  externalities and fix info gaps
  • advantages - can reduce poverty
    • disadvantages- can caused excess supply/ demand, hard to know whre to set the prices, creation of black markets
    • maximim and minimum prices - a max prie are set on good with positive externalities, a min orice is set on negative externalities to reduce consumotion
  • government failure - when intervention leads to net welfare loss and missallocatio of resources. the total social cost is greater than total social benefit
    • disortion of the price signal
      • disort free market mechanism, lead to excess demand and supply, resources may be allocated iefficiently as disorts the price mechanism
    • excessive administation costs - social costs may be higher than social benefit when admin costs are taken into account
    • infomation gaps - info gov has will be limited, its impractical and impossibe for gov to get all info they need

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