Ch. 10

• What are the methods of government intervention in markets?

  • Taxation
  • Subsidies
  • Government expenditure
  • Price controls
  • Buffer stock systems
  • Public/private partnerships
  • Legislation
  • Regulation
  • Tradable pollution permits
  • Information provision
  • Competition policy
• What is an indirect tax?

  A tax levied on expenditure on goods or services
• What is a direct tax?

  A tax charged directly to an individual based on a component of income
• What does the polluter pays principle entail?

  A firm causing pollution should be charged the full external cost it inflicts on society
• What is competitive tendering?

  A process by which the public sector calls for private firms to bid for a contract
• What is a public-private partnership?

  An arrangement where a government service or private business venture is funded and operated through a partnership
• What is the Private Finance Initiative (PFI)?

  A funding arrangement where the private sector designs, builds, finances, and operates an asset for the public sector
• What is a buffer stock system?

  A scheme intended to stabilize the price of a commodity by buying excess supply and selling when supply is low
• What is a pollution permit system?

  A system for controlling pollution based on a market for permits that allows firms to pollute up to a limit
• What is government failure?

  A misallocation of resources arising from government intervention that causes a less efficient allocation of resources
• What are the main forms of government intervention to solve market failure?

  • Taxation
  • Subsidies
  • Government expenditure
  • Price controls
  • Buffer stock systems
  • Public/private partnerships
  • Legislation
  • Regulation
  • Tradable pollution permits
  • Information provision
  • Competition policy
• What are some examples of regulatory interventions with externalities?

  Smoking bans, minimum age laws, maximum CO2 emissions, recycling directives, and fishing quotas
• What is the purpose of taxation?

  To pay an amount to the government
• How does direct tax affect demand?

  It is paid by the consumer and aims to affect demand
• How does indirect tax affect the supply curve?

  It is paid by the producer and may be passed on to the consumer
• What factors affect the effectiveness of taxation?

  The price elasticity of demand and the cross elasticity of demand
• What is the effect of an indirect tax on cigarettes?

  It raises the price and reduces the quantity traded
• What are some examples of indirect taxes in the UK?

  • Air Passenger Duty
  • Alcohol duties
  • Betting, gaming and lottery duties
  • Insurance Premium Tax
  • Landfill Tax
  • Plastic packaging tax
  • Soft Drinks Industry Levy
  • Tobacco duties
  • Value Added Tax
• What is the impact of a subsidy on producers?

  A subsidy increases the supply of a product
• What factors affect the effectiveness of a subsidy?

  The price elasticity of demand and the cross elasticity of demand
• What are some justifications for subsidies?

  • Helping poorer families with food and childcare costs
  • Improving nutrition and productivity
  • Encouraging output in sectors like renewable energy
  • Protecting jobs in loss-making industries
  • Improving housing and transport affordability
• What are some potential disadvantages of government subsidies?

  • Producers can become subsidy dependent
  • Distortion of resource allocation
  • Excess production and surpluses
  • Environmental risks from excessive production
  • High costs to taxpayers
• What is the current state of the UK steel industry?

  The UK steel industry has faced crises due to international competition and high domestic costs
• What was the contribution of the UK steel industry to the economy in 2021?

  £2 billion worth of output
• What financial aid has the government offered to Tata Steel UK and British Steel?

  About £300 million each in aid
• What was the decline in UK crude steel production in 2022?

  17 percent to just 6 million tonnes
• What are the arguments in favor of continued subsidies for the UK steel industry?

  1. Jobs and trade: Supports thousands of jobs and prevents structural unemployment.
  2. Environmental aims: Encourages investment in greener technologies to reduce pollution.
• What are the arguments against continued subsidies for the UK steel industry?

  1. Subsidies can lead to dependency and inefficiency.
  2. High costs to taxpayers and potential for government failure.
• What was the output of the UK steel industry in 2021?

  It supported 33,400 jobs in the UK.
• Who is the largest steel manufacturer in the UK?

  Tata Steel
• How much loss did Tata Steel Europe report in the final three months of 2022?

  £176 million
• How much aid has the government offered to Tata Steel UK and British Steel?

  About £300 million each
• What is the estimated investment needed for Tata to decarbonise its operations?

  £2 billion-plus
• What was the percentage slump in UK crude steel production in 2022?

  17 percent
• What is a major argument in favor of continued subsidies for steel?

  It provides jobs for thousands.
• What is a potential consequence of ending steel making in the UK?

  It risks causing a rise in structural unemployment.
• How might subsidies help with environmental aims in the steel industry?

  They can encourage investment in greener technologies.
• What is a major argument against continued subsidies for steel?

  They come at a cost to taxpayers.
• What is the opportunity cost of subsidies for the steel industry?

  Public funds are redirected from higher-return investments.
• How can subsidies affect economic efficiency?

  They can discourage innovation and investment in new technologies.