government measures

the most well known government measures to internalise externalities

taxes and subsidies

minimum price

the price the government sets above the market price

maximum price

the price the government sets below the market price

the theory of producer tax

• the S-curve will be impacted, because it’s a producer tax

• tax=cost so the supply curve moves to the left/upward

the theory of producer subsidies

• the S-curve will be impacted, because it’s a subsidy

• subsidy=revenue so the supply curve will shift downwards/to the right

what is a quota?

the government sets a limit on the quantity that can be produced or supplied on the market

advantages of a quota

it keeps the supply of fish intact, a source of income for the fishery sector. Quota can be traded between fishermen.

disadvantages of quota

the price of fish will increase. it limits the turnover & profit of the fishery sector (short term). Control mechanism costs time and money.

positive wealth impact of government measures

correction of market failures: such as taxes on pollution (Pigouvian taxes), or subsidies for education. this increase efficiency.

negative wealth impact on government measures

distortions of market forces: all ways in which the government intervenes in the market lead to DWL

what are import duties and taxes?

fees that the government charges when goods and services cross the border into a country.

purpose of import duties and taxes

it protects the local businesses and controls or limits certain goods. can also be used to retaliate (start of a trade war)

what are export subsidies?

these are financial boosts that the government gives to local companies so they can sell their products abroad cheaper or more competitively.

what is the purpose of export subsidies?

this increases the global market share which creates more influence and jobs. Also, they help businesses scale up production by selling to global markets

what is an import quota?

strict limit on the quantity/value of a product that can be imported into a country during a certain time

what is the purpose of an import quota?

protects domestic industries

examples of trade protectionism

import quota, export subsidies, import duties and import taxes

what is trade protectionism?

this government policy is based on 3 arguments:

• employment

• anti-dumping

• infant industry

• relatiation

what is dumping?

selling at very low prices (under the cost price of local companies)

what is an infant industry?

a young industry that needs time