Microeconomics Evaluations

Price Ceilings Advantages

• Some consumers bene - lower p.

  •  consumer surplus increases

• ST - stabilise markets during periods of intense disruption e.g. Covid supplies at the start of the pandemic

Price Ceilings Disadvantages

• Some consu X  purchase due to the shortage

• Proders lose out - price is below what usually receive

  • their producer surplus falls

• unmet demand encourages creation of illegal markets (black/grey markets)

• Maximum prices distort market forces - inefficient allocation of scarce resources e.g. price ceilings of housing rentals in the property market create a shortage

• When used in necessity markets, Governments may be forced to intervene further by supplying the good/service themselves in order to meet the excess demand

Price Floors Advantages

• In agri markets -  proders bene - receive a higher p (Governments will often purchase the excess supply and store it or export it)

• Demerit markets - o/p falls (Governments will not purchase the excess supply of a demerit good)

• Proders - lower their output in the market - match the QD at the min p - helps reduce the external costs

Price Floors Disadvantages

• costs govt to purchase the excess supply and an oppo cost is involved

• Farmers - over-dependent on the Govt help

• Proders lower o/p - increased unemployment 

Minimum Wages (PF) Advantages

• Guarantees a min income for lowest paid workers

• Higher income lvls - increase consump in the econ

• May incentivise workers to be more productive

Minimum Wages (PF) Disadvantages

• Raises COPs for firms - may then raise p of g/s

• If firms unable to raise p - min wage - force them to lay off some workers (increase unemployment)

Subsidies Advantages

• targeted to help specific dom indus

• Lowers p and increases d for merit g

• Helps change destructive consu behaviour in LR e.g. subsidising electric cars

• help dom firms compete int

Subsidies Disadvantages

• Distorts resource allo in markets

• oppo cost - govt expenditure

• Subsidies prone to political pressure and lobbying by powerful business interests e.g. most oil companies receive subsidies from their respective governments

• disincetivise firms from becoming more efficient or competitive - protects inefficient dom proder

Taxes Advantages

• Raises p, reduces the Qd of demerit g

• Reduces external costs of consump and prod

• Raises rev for govt programs

Taxes Disadvantages

• Effectiveness of tax in reducing use of demerit g depends on PED

  • if inelastic - consu will cont to purchase

• create illegal markets - consumers seek avoid paying taxes

• Proders may be forced to lay off workers - o/p falls due to the higher prices

Direct Provision of Services (Public G) Advantages

• provided free at the point of consumption

• Accessible to everyone regardless of income 

• Usually provide both private and external benefits to society

• Non-Rivalrous and Non-Excludable

Direct Provision of Services (Public G) Disadvantages

• Paid for through general taxation

• Oppo cost

• Free products may result in excess demand and long waiting times e.g. procedures at Public hospitals

Regulation and Laws Advantages

• Indv/firms may be fined/imprisoned for breaking the rules e.g. selling cigarettes to minors is a punishable offence

• help reduce external costs of demerit g

• Fines can generate extra govt rev

Regulation and Laws Disadvantages

• Enforcing laws - hire more people to work for the regulatory agencies

• Enforcing laws - difficult - complex process to determine if firms/consumers are breaking the laws

• May create underground (illegal) markets - generate higher external costs on society

Nudge Advantages

• Cost effective

• Preserves freedom of choice

• Improved public health

• Better decision making

• Improved sustainability

Nudge Disadvantages

• Ethical concerns

• Lack of transparency

• Unintended consequences

• Variable success rate

Min Wage Advantages

• Guarantees a min income for the lowest paid workers

• Higher income levels help to increase consump in econ

• May incentivise workers to be more productive

Min Wage Disadvantages

• Raises the COP for firms who may respond by raising the p of g/s

• If firms are unable to raise p may lay off some workers (increase UE)