government intervention L7 M1 econ
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government intervention L7 M1 econ - Leaderboard
government intervention L7 M1 econ - Details
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| 🇬🇧 | 🇬🇧 |
| Whats indirect tax | Tax imposed by gov that increases supply of cost producers |
| Examples of indirect tax | Air passenger duty, alc duties, landfill tax, sugar tax |
| Ad valorem tax | Tax imposes a tax on a good or asset, depending on its value. |
| Regressive tax | Tax imposed by a gov which takes a higher percentage of someone’s income from those on low incomes |
| Justification for indirect tax | External cost of sugary drinks, info failures, sugar tax rises revenue for gov |
| Gov subsidies | Any form of gov support either financial or otherwise offered t producers and occasionally consumers |
| Examples of gov subsidies | Biofuel subsidies for farmers, solar panel feet in tariffs, job furlough schemes |
| Justification for subsidies | • Helping poor families with food and childcare costs particularly during a crisis • Improved nutrition can lift labour productivity and reduce the burden on health services • Reduce the cost of training and employing workers |
| Disadvantages of subsides | • Producers can become subsidy dependent • Subsidies can distort resource allocation • Subsidies can lead to excess production / surpluses |
| Whats carbon pricing split into | Cap and trade system and carbon trading |
| Whats cap and trade system | Place a cap on the total amount of carbon emissions and allow companies to trade emission permits |
| Whats carbon trading | – form of pollution control that uses the market mechanism to change relative prices and the incentives of producers and consumers to reduce their total carbon emissions |
| Carbon trading permit | Carbon permit (allowance, credit) = 1 credit = 1 tonne of CO2 |
| For a market to exist u need? | 1. Laws – illegal not to have enough carbon permits (fined) 2. Buyers – firms who pollute (such as a cement factory, airline) 3. Sellers – firms who have surplus carbon permits |
| Why is carbon trading known as a market based or price based approach | They leave a decision of how, and where, to make investments to reduce emissions to individual firms |
| Whats emission reduction | – the primary goal of carbon trading systems is to facilitate a gradual and significant reduction in greenhouse gas emissions. |
| Explanation for carbon trading | Carbon trading creates a market for carbon permits. Firms that emit more CO2 than they are allowed to can buy credits from companies that emit less. The supply of permits is capped and gradually reduced which (ceteris paribus) leads to a higher price. Consequently, a higher marginal private cost from production might create an incentive for businesses to invest money in low carbon technologies. |
| Carbon price volatility | - this is a barrier to investment bc of higher risk. A carbon tax provides more certainty to businesses affected. |
| Risk of carbon leakage | Occurs when companies move production to countries with lower carbon prices, to avoid paying for carbon credits. |
| Carbon tax | Carbon tax is a tax on the consumption or production of goods and services, which cause carbon emissions. It’s a policy designed to make the polluter pay for externalities created. |
| Advantages ct | 1. Reduce Carbon Emissions 2. Mitigate Climate Change 3. Encourage Clean Energy Adoption 4. Fund Green Initiatives 5. Market-Based Approach 6. Revenue Neutral Options 7. Administrative Efficiency |
| Disad ct | 2. Uncertainty Around Emissions Impact 3. Lack of Support 4. Risks Competitiveness & Leakage 5. Complex Policy Design 6. Other Policies Could Be More Effective |
| Minimum prices | – legally imposed price floors and are most associated with minimum hourly wage rates in the labour market or guaranteed price support schemes for producers and farmers. |
| Disadvantage minimum price strategy | 1. If demand has high ped – could hit production, profits and jobs in drinks industry 2. Impact on high consumption groups – might be a regressive policy for low income families 3. Doesn’t generate tax rev for the gov. |
| What can min price cause | Market distortions. If the guaranteed price is set significantly above the market equilibrium price, it can lead to overproduction and surpluses |
| Whats max price | A legally imposed max price in a market that suppliers cannot exceed. |
| What is gov failure | – when gov intervention to correct one or more market failure leads to a greater net social welfare loss |
| Causes | Policies, high enforcement costs, regulatory capture, conflicts with other policy aims. |
| Whats law of unintended consequences | Idea that an action can have unanticipated outcomes, both positive and negative. |
| Reg failure | Is a type of gov failure that occurs when regulation fails to achieve its intended purpose. |
| Cobweb theory | Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. |