1.4:government intervention

tradeable pollution permits

-Level of info the govt has (if the gov KNOWS how much pollution is allowed and its accurate,the policy will be more efficient & vice versa)//hard to know how many permits to set
-if not enough firms can reduce pollution then the price for permits will increase and businesses will incur more costs
-need for international co-operation
-firms may pass permit price onto consumer
externalities

indirect tax ev

-magnitude
-difficult to set tax as there is conflict in raising revenue and saving externally
-may create a black market
-regressive and therefore can exemplify inequality
-depends on PED

indirect tax advantages

-internalises externality and this maximises social welfare
-raises gov revenue which can be used to solve externalities in different ways

subsidies advantages

-society reaches social optimum and welfare is maximised
-has other positive impacts eg.encourages small businesses

subsidies disadvantages

-high opportunity cost
-difficult to target as exact size of externality in production is unknown
-can become inefficient if in place for a long time,
-difficult to remove therefore gov loses lots of money

price controls advantages

-if set at MSB\=MSC the they can help externalities by increasing welfare
-A minimum price will ensure that goods are affordable, whilst a maximum price will ensure that producers get a fair price. Both of these are able to ​reduce poverty ​and can increase equity/equality.

price controls disadvantages

-distortion of price signals which causes excess supply/demand,
-difficult to know where to set prices,
-can lead to creation of black markets

state provision of public goods advantages

-corrects market failure
-equality for essential goods and services
-benefits of providing the good eg.if the gov provides healthcare it increases no of healthy workforce which increases supply

state provision of public goods disadvantages

-expensive,high opportunity cost
-may breed government production inefficiency as there will be no incentive for the production of goods
-may suffer from corruption
-may produce wrong no of goods eg. hospital beds may not be enough

provision of info advantages

-heps consumers to act rationally(maximise utility, corrects market failure)
-shifts demand to social optimum, welfare maximised

provision of info disadvantages

costs lots for gov
no guarantee of success-consumers may not listen and act irrationally

regulation advantages

-hard touch intervention, consumers can't do anything but listen and this guarantees success In behaviour
-solves market failure and maximises social welfare

regulation disadvantages

-monitoring costs
-regulatory capture
-firms may pass on costs

what are the effects of gov failure

-excessive administration costs
-distortion of price signals
-unintended consequences
-info gaps

tradeable pollution permits

-Level of info the govt has (if the gov KNOWS how much pollution is allowed and its accurate,the policy will be more efficient & vice versa)//hard to know how many permits to set
-if not enough firms can reduce pollution then the price for permits will increase and businesses will incur more costs
-need for international co-operation
-firms may pass permit price onto consumer

externalities

-magnitude of external costs/the magnitude of the externality
-imperfect knowledge
-difficulty of obtaining government intervention
--\>risk of government failure
-time lag

indirect tax ev

-magnitude
-difficult to set tax as there is conflict in raising revenue and saving externally
-may create a black market
-regressive and therefore can exemplify inequality
-depends on PED

indirect tax advantages

-internalises externality and this maximises social welfare
-raises gov revenue which can be used to solve externalities in different ways

subsidies advantages

-society reaches social optimum and welfare is maximised
-has other positive impacts eg.encourages small businesses

subsidies disadvantages

-high opportunity cost
-difficult to target as exact size of externality in production is unknown
-can become inefficient if in place for a long time,
-difficult to remove therefore gov loses lots of money

price controls advantages

-if set at MSB\=MSC the they can help externalities by increasing welfare
-A minimum price will ensure that goods are affordable, whilst a maximum price will ensure that producers get a fair price. Both of these are able to ​reduce poverty ​and can increase equity/equality.

price controls disadvantages

-distortion of price signals which causes excess supply/demand,
-difficult to know where to set prices,
-can lead to creation of black markets

state provision of public goods advantages

-corrects market failure
-equality for essential goods and services
-benefits of providing the good eg.if the gov provides healthcare it increases no of healthy workforce which increases supply

state provision of public goods disadvantages

-expensive,high opportunity cost
-may breed government production inefficiency as there will be no incentive for the production of goods
-may suffer from corruption
-may produce wrong no of goods eg. hospital beds may not be enough

provision of info advantages

-heps consumers to act rationally(maximise utility, corrects market failure)
-shifts demand to social optimum, welfare maximised

provision of info disadvantages

costs lots for gov
no guarantee of success-consumers may not listen and act irrationally

regulation advantages

-hard touch intervention, consumers can't do anything but listen and this guarantees success In behaviour
-solves market failure and maximises social welfare

regulation disadvantages

-monitoring costs
-regulatory capture
-firms may pass on costs

what are the effects of gov failure

-excessive administration costs
-distortion of price signals
-unintended consequences
-info gaps