Econ

• What is the purpose of indirect taxation when a good has a negative externality?

  To prevent market failure
• What happens to the supply curve when indirect taxation is introduced?

  It shifts from S1 to S2
• Where does the free market produce in relation to MPC and MPB?

  At P1Q1, where MPC=MPB
• What is the social optimum position in terms of MSB and MSC?

  Where MSB=MSC at P2Q2
• What does the introduction of the tax achieve in terms of social welfare?

  It maximizes social welfare
• What type of tax can also be introduced besides a specific tax?

  An ad valorem tax
• What are the advantages of indirect taxation?

  • Internalizes the externality
  • Raises government revenue
  • Helps goods become more elastic in the long run
• What are the disadvantages of indirect taxation?

  • High opportunity cost for government spending
  • Difficult to target due to unknown externality size
  • Can cause inefficiency in producers
  • Difficult to remove once introduced
• What is the condition for a maximum price to be effective?

  It must be set below the current price equilibrium
• What is a minimum price and when is it effective?

  It is set above the current price equilibrium
• What is the purpose of setting a maximum price on goods with positive externalities?

  To prevent monopolies from exploiting customers
• What happens when a maximum price is imposed?

  There is excess demand of QD-QS
• What are the advantages of maximum and minimum prices?

  • Ensure affordability of goods
  • Ensure fair prices for producers
  • Help reduce poverty and increase equity
• What is a pollution permit?

  It allows pollution up to a specific amount
• How does the government control pollution permits?

  By limiting the maximum amount of pollution
• What happens to the price of permits when demand increases?

  It increases the price of the permits
• What are the advantages of tradable pollution permits?

  • Guaranteed reduction in pollution
  • Government revenue from permit sales
  • Encourages investment in green technology

  
• What are the disadvantages of tradable pollution permits?

  • Expensive to monitor and police
  • Raises costs for businesses
  • Difficulty in determining the number of permits
• What is the free rider problem in relation to public goods?

  They will be under-provided by the free market
• What are the advantages of state provision of public goods?

  • Corrects market failure
  • Improves social welfare
  • Ensures access to basic goods for everyone
• What are the advantages of providing merit goods?

  • Ensures access to essential services
  • Promotes social equity
  • Addresses information gaps in the market
• What percentage reduction in greenhouse gases is mentioned?

  21%
• Which greenhouse gas was included in the scheme after its introduction?

  Nitrous oxide
• Which industry was the greenhouse gas scheme extended to?

  Airline industry
• Where has the permit scheme also been introduced?

  China
• What are public goods and their characteristics?

  • Non-excludable
  • Non-rivalry
  • Free rider problem leads to under-provision
• Why does the government provide public goods directly?

  To correct market failure through taxation
• What are the advantages of government provision of public goods?

  • Corrects market failure
  • Improves social welfare
  • Promotes equality in access
  • Enhances workforce health for economic growth
  • Ensures efficiency through competitive tenders
• What are the disadvantages of government provision of public goods?

  • High opportunity cost
  • Administration costs
  • Wrong combination of goods produced
  • Inefficiency in production
  • Risk of corruption and conflicting objectives
• What public goods does the UK government provide?

  Roads, education, and healthcare
• What issue does the NHS face according to the material?

  Severe underfunding
• What does the material suggest about resource allocation in the UK?

  More money is spent on railways than roads
• How does the government provide information to consumers?

  • Addresses asymmetric information
  • Forces companies to provide information
• What are the disadvantages of government information provision?

  • Can be expensive
  • Government may lack complete information
  • Consumers may ignore the information
• What does the 'traffic light system' do?

  Rates foods on calories, sugar, and salt
• What is the purpose of regulation by the government?

  • Impose laws and caps
  • Ensure companies provide full information
  • Introduce regulatory bodies
• What are the advantages of government regulation?

  • Considers externalities
  • Prevents consumer exploitation
  • Maximizes social welfare
• What are the disadvantages of government regulation?

  • Monitoring costs are high
  • Different costs for different companies
  • May reduce competition and innovation
• What are some regulations in place to correct market failure in the UK?

  EU fishing quotas and smoking bans
• What is government failure?

  • Intervention leads to net welfare loss
  • Misallocation of resources