T2

?
Explain the purpose of government intervention
Government intervene in the market to correct market failure
1 of 31
Give methods the government can use to intervene
Subsidies. Taxation. Regulation. Information. Pollution Permits. State provision of public goods. (Max and minimum prices)
2 of 31
Explain the purpose of indirect taxation
To reduce consumption of goods with negative externalities by internalising the externality and also goods overconsumed due to information gaps
3 of 31
What are the two types of indirect taxation
Ad valorem & Specfic unit
4 of 31
Explain what is meant by ad Valorem
Tax set as a percentage of the price of a good
5 of 31
Explain what is meant by specific unit
A fixed charge imposed per a unit of good
6 of 31
Explain how indirect tax affects market failure
.
7 of 31
Give pros of using indirect tax to correct market failure
Revenue can pay for external costs. Push MPC towards MSC, reducing consumption moving output to SOP. 3. Can be adjusted to find right level. 4. Specific groups can be targeted.
8 of 31
--Give cons of using indirect tax to correct market failure
1. Regressive effect- people on low income hit hardest, as it is ^^ % of income. 2. Valuation problem--setting monetary value on-ve externality is hard to measure. 3. Business can lose control of costs (PED elastic). 4. demand = for inelastic goods
9 of 31
Explain what is meant by a subsidy
A government grant to increase production / consumption of goods and services with +ve externatilties or reduce price
10 of 31
Explain the purpose of subsides
A subsidy has the effect of reducing production costs . To increase goods with positive externalities by reducing production or consumption
11 of 31
Explain how subsides affects market failure
.
12 of 31
Give pros of using subsides to correct market failure
Keep inefficient businesses/sectors competitive (allows local employment). 2. Increases supply of +ve goods. 3. Lower price for +ve goods (^^ surplus)
13 of 31
Give cons of using subsides to correct market failure
Difficult to quantity monetary value to externality. 2. Corruption means subsidy is not used effectively. 3.
14 of 31
Explain what is meant by a maximum price
When a government sets a legal limit on the price of a good or service – with the aim of reducing prices below the free market equilibrium price. it is only effective below equilibrium
15 of 31
Explain what is meant by a minimum price
When the government sets a minimum legal limit of a price of a particular good or service often above the free market . Example is minimum wage
16 of 31
Explain the purpose of maximum and minimum price
This can discourage consumption or production as it ensures the good never falls below certain price.
17 of 31
Explain what is meant by a pollution permit
Gives firm the right to emit a given quantity of waste in agiven time period. These are tradable so can be bought or sold
18 of 31
Explain the purpose of pollution permits
Tradable permits provide an incentive to polluters to 'internalise' the externality.
19 of 31
Give pros of pollution permits
1. Gives a financial incentive for firms to reduce MF (internalising). 2. Strong deterant as firms can be prosecuted.3. Allows government to set permits at SOP. 4. A market is created for buying and selling carbon permits,
20 of 31
Explain what is meant by state provision of public goods
When the government could provide public goods which are under-provided in the free market
21 of 31
Explain the purpose of state provision of public goods
Directly provides goods at the SOP
22 of 31
Give pros of state provision
.
23 of 31
Give cons of state provision
1. Misallocation of resources to suit government need (PPF) 2. Valuation problem- information may cause overprovision or under. Limits competitveness and choice. Opp costs. Free rider problem
24 of 31
Give pros of regulation
.
25 of 31
Give cons of regulation
.
26 of 31
Define regulation
When the government monitors, prohibits or limits the production of certain goods/services so that a more SOP is met
27 of 31
State the purpose of government regulation
To reduce or stop production/consumption of goods which generate -ve
28 of 31
Give pros of using maximum price to correct market failure
1. Necessities can be afforded. 2. Prevents exploitation of price (monopoly) 3.
29 of 31
Give cons of maximum prices
1. Shortage (distorts market = disequilibrium) demand will exceed supply, can lead to emergence of black markets. 2. Market can become less profitable for firms (less investment & less profitable)
30 of 31
Give cons of pollution permits
Not worldwide-- (countries needs to take part for effecti). 2. If many are available, price for permits become low so they a weak disincentives. 3. Valuation problem 4. Difficult to police emission (big countries). 5. Acts as barrier to market
31 of 31

Other cards in this set

Card 2

Front

Give methods the government can use to intervene

Back

Subsidies. Taxation. Regulation. Information. Pollution Permits. State provision of public goods. (Max and minimum prices)

Card 3

Front

Explain the purpose of indirect taxation

Back

Preview of the front of card 3

Card 4

Front

What are the two types of indirect taxation

Back

Preview of the front of card 4

Card 5

Front

Explain what is meant by ad Valorem

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Business Studies resources:

Pricing
See all Business Studies resources »See all Economic growth resources »