What the governement can do about externalities?

What is an incentive?
Any factor that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives.
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What is the Polluter Pays Principle?
Holds that that the price of a product that pollutes should reflect both the private costs of production and the external costs.
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How can the government control externalities?
Legislation, Regulation, Taxation, Subsidies, Tradable permits, Education, Free provision, Advertising
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How can legislation control externalities?
Restricts certian activities, changes behaviour, sets standards like pollution levels.
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What are the advantages of legislation?
Expected standards are clear, failure to comply has consequenses, the consequences are known.
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What are the disadvantages of legislation?
The law can be difficut to enforce, enforcement can be expensive, penalities may not deter behaviour.
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What is regulation?
Legal or other rules that apply to organisations. It sets tandards and controls activity.
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What sort of regulation can be used?
Quotas, limits eg pollution levels, regulatory bodies
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What are the problems with regulation?
Regulatory bodies need to be created and maintained to inspect and prosecute businesses, full monitering an enforcement can be difficult and costly.
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What effect does taxation have?
Will increase the price and reduce consumption.
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How does tax affect the supply curve?
The supply curve shifts vertically ipwards by the amount of the tax.
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How will taxation affect price inelastic products?
Will only see a slight fall in demand
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How does tax effect an elastic product?
There will be a substantial fall in the quantity demanded.
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What do subsidies do?
Make specific products cheaper and encourages consumption.
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What are tradable permits?
When the governmnet issues a restrictedd number of permts equal to the desired level of emissions.
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What do trade permits do?
Gives an incentive to reduce emissions, inefficient producers can expand without buying more permits which increases operating costs.
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Other cards in this set

Card 2

Front

What is the Polluter Pays Principle?

Back

Holds that that the price of a product that pollutes should reflect both the private costs of production and the external costs.

Card 3

Front

How can the government control externalities?

Back

Preview of the front of card 3

Card 4

Front

How can legislation control externalities?

Back

Preview of the front of card 4

Card 5

Front

What are the advantages of legislation?

Back

Preview of the front of card 5
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