Government Intervention (Themes 1&4)

What is regulation?

A regulation is a simple policy that sets requirements and rules for producers and consumers. It is backed by law (rule established by authority)
these can affect demand and supply - they have an immediate effect

what types of regulation can be enforced?

packaging, design, manufacturing, storage, marketing, use and disposal of products

problems of regulation for society

Easy to over and under-regulate

costly to monitor - penalties must be sufficient

imperfect information makes it harder

businesses may move abroad to avoid it

impact of regulations on businesses

money to implement - paperwork and admin

demand may fall

profits

international competitors may gain an advantage

but can increase trust in them by following regulations

success of regulations depend on…

enforceability of law and penalty

is it avoidable?

what are the alternatives

what are some examples of taxes?

income, corporation, sugar, import duties, inheritance, council, fuel, dividends

what are some rates of vat?

exempt - education, insurance, doctors

0% - food, children’s clothes

5% - power, energy saving materials

20% - private schools now a part of this

small businesses exempt

income tax thresholds?

• 0% - £0 to £12,570

• 20% - £12,570 to £50,270

• 40% - £50, 270 to £150,000

• 45% - Earning over £150,000

most people in 20% bracket

possible to avoid if self-employed (underestimate income)different thresholds for income

what is the difference between a indirect and direct tax?

Direct taxes are levied directly on individuals or organizations, such as income tax, while indirect taxes are imposed on goods and services, such as sales tax or VAT, and are collected by intermediaries.

what are some positives of indirect taxation?

adjusts supply curve

Makes producers and consumers pay additional (external) costs – they’re the ones causing the problem

Has been shown to be effective with certain products

problems of indirect tax….

Determining the rate – likely to be inaccurate and may not represent external costs

If demand is inelastic then quantity consumed is not reduced by much

Absence of link between tax collected and compensating those affected – not hypothecated.

Tax evasion – through duty free

Administering and monitoring costs

Effects on poverty and inequality? - if taxes are regressive

what decides how effective a tax is?

How easy it is to identify the full social costs of a product and identify an appropriate tax

How easy it is to enforce

How much of a link there is between the revenue collected from the tax and the compensation of the affected third parties

Will it contribute to inequality??

The global position

what are subsidies and how do they help?

payment to producers per unit of output

this helps to adjust supply for merit goods with positive externalities

what are some disadvantages of a subsidy?

costly - opportunity cost

does it move the right curve?

requires cost benefit analysis - which can be quite difficult

what is provision and some examples?

the good is supplied by the government (or they employ a company to do so)

this can include: vaccines, education, roads etc

what are the problems with government spending and provision?

no profit motive and competition so inefficient

potential budget deficit

difficult to determine what levels of output should be

how do pollution permits work?

power stations bid for permits and can sell them is emission levels are low. it internalises the externality by making it a cost

what are some disadvantages to pollution permits?

How to allocate permits?

Must monitor

Firms may move to non-permit areas

Doesn’t stop pollution especially where there is inelastic demand

The cost of permits are not that great

what is a carbon price?

The amount the industry has to pay for each tonne of carbon emissions. This can be in the form of a tax or an offset price, pollution permit price