imperfect or inadequate information, law of unintended consequences, opportunity costs and administration costs, bulic choice theory, conflicting objectives
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what are the two main market based policies?
taxes and subsidies
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what is the main problem resulting from subisidies?
opportunity cost of government funding, i.e. the money could've been spent elsewhere
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what is information failure?
when the consumption in a market is controlled/influenced by the lack of provision or wrong provision of information, e.g. people buy more computer games than books because they are not correctly informed about the costs and benefits of each item.
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what are command and control policies?
those which remove or restrict the operation of free markets.
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what are the three most common command and control policies?
bans, direct provision and regulation.
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when is it acceptable to ban a good or service?
when the costs outweigh the benefits at ALL output levels
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what do maximum price schemes do?
increases the willingness and ability of a consumer to demand the good and the demand rises from the current equilibrium.
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what are the problems of a maximum price scheme?
the willingness and ability of the producers to supply the good falls and therefore causes excess demand (or a shortage). also, some suppliers may sell their output in a shadow market and actually make the good even more unaffordable than before.
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where must the max price be set?
below the current market equilibrium price
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what does minimum price control do?
increases the willingness and ability of producers to supply the good, but consumers are unwilling to buy it at the higher price and there will be a surplus (or excess supply)
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Other cards in this set
Card 2
Front
what are the two main market based policies?
Back
taxes and subsidies
Card 3
Front
what is the main problem resulting from subisidies?
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