Micro Topic 8: Market Failure + Government Intervention

Cons of Subsidies

Cost to Government

Setting at The Right Level (Imperfect Information for the Government)

How Will Firms Use The Subsidy?

Price Inelastic Demand

Cons of Indirect Tax

Price Inelastic Demand

Setting Tax at The Right Level (Imperfect Information for the Government)

Regressive (Income Inequality)

Black Markets

Cons of Minimum Price (Price Floor)

Price Inelastic Demand

Regressive (Income Inequality)

Black Markets

Setting Min Price at The Right Level (Imperfect Information for the Government)

Cons of Maximum Price (Price Ceiling)

Shortage

Black Markets

Enforcement (Cost to the Government)

Setting Max Price at The Right Level (Imperfect Information for the Government)

Cost

Benefits of Regulation

Incentive To Change Behaviour

Solve Issues in the Free Market

Allocative Efficiency and Welfare Gain

Cons of Regulation

Cost to Government

Setting The Right Regulation

Black Markets and Unintended Consequences

Equity

Benefits of Tradeable Pollution Permits?

Cons of Tradeable Pollution Permits

Enforcement (Cost to the Government)

Imperfect Information for the Government

Unintended Consequences

Need for International Cooperation

Benefits of State Provision

Government Consider Full Social Costs and Social Benefits

Free at The Point of Consumption

Solve Underconsumption and Underproduction/Inequity Issues

Solve Missing Market Issues

Allocative Efficiency and welfare Maximisation

Cons of State Provision

Excess Demand

Cost to Government

Imperfect Information

Inefficiency of State Run Organisations

Benefits of Information Provision

Consumers Make Rational Decisions Knowing Their True MPB

Solve Under/Overconsumption

Allocative Efficiency

Cons of Information Provision

Cost to Government

No Guarantee of Success

Long Run Policy (not short run)

Benefits of Property Rights

Incentive not to Exploit Common Access Resources

Negative Externality Internalised

If Enforced Will Reduce Quantity to the Socially Optimum Level

Cons of Property Rights

Can Property Rights be Evenly Distributed?

Enforcement (Cost to the Government)

Equity (who gets the rights?)

Factors that Can Cause Government Failure?

Information Failure

Admin and Enforcement Costs Very High

Unintended Consequences

Regulatory Capture