Where external costs cannot be quantified, solutions may be harder to find, it is hard to measure long-term damage and it is difficult to decide how much to spend on solutions so political issues can arise
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How can the provision of public goods correct market failure?
All of society get the benefits of public goods, they meet basic needs that keep us safe and thus these are positive externalities that everyone experiences
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How can the provision of merit goods correct market failure?
They provide external benefits, such as education growing the economy and benefits employees and exporters
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Why might public and merit goods not be provided?
Voters dislike paying taxes so the government cannot raise enough revenue to pay for adequate provisions
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How can indirect tax of demerit goods correct market failure?
Tax will increase the price and reduce consumption of demerit goods which will reduce some of their negative externalities as demand will fall, but this depends on the PED of the product
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What are tradable pollution permits?
They allow businesses to pollute the atmosphere up to a certain level but no more. The total allowed can be reduced over time, allowing businesses to reduce their pollution processes
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How do tradable pollution permits create an incentive for businesses to reduce pollution?
If the business cuts pollution faster than it needs to, it can sell unused permits to another business and inefficient businesses have to buy more permits if they want to expand, reducing their profits
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How can tradable pollution permits not work?
If the number of permits is restricted to ensure businesses have to reduce emissions as some businesses may just keep their pollution at the same level
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How can education reduce market failure?
Education can raise awareness of issues such as smoking and pollution and reduce the negative externalities from this
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How can reducing asymmetric information reduce market failure?
It gives the consumer full information before purchasing through social media, comparison websites or pressure groups which allows much information to be shared
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What is legislation?
Laws passed by Parliament
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What is regulation?
A general term to refer to laws and regulations concerning what businesses can and cannot do
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How can governments control negative externalities with laws or regulations?
They can change behaviour, to control business and individuals behaviour through sanctions or penalties that deter unlawful behaviour
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How can laws be ignored?
An irresponsible business may consider it cheaper to pollute and pay a fine, rather than go to the expense of cleaning up its pollution process
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How have attempts to correct market failure failed?
Demerit goods are still available and environmental protection will not last in the long term with the way it is
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Other cards in this set
Card 2
Front
How can the provision of public goods correct market failure?
Back
All of society get the benefits of public goods, they meet basic needs that keep us safe and thus these are positive externalities that everyone experiences
Card 3
Front
How can the provision of merit goods correct market failure?
Back
Card 4
Front
Why might public and merit goods not be provided?
Back
Card 5
Front
How can indirect tax of demerit goods correct market failure?
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