A list of different types of economic policies. Monetary policy Fiscal policy Supply-side policies Microeconomic policies – tax, subsidies, price controls, housing market, regulation of monopolies Labour market policies Tariff/trade policies Demand-side policies Policies for influencing aggregate demand and expenditure in the economy. This mainly involves fiscal and monetary policy. Fiscal policy Government changes to …
Readers Question: What happens when the government subsidizes a product? A subsidy means the government pays part of the cost. For example, the government may give farmers a subsidy of £10 for every kilo of potatoes. The effect is to shift the supply curve to the right, leading to lower price and higher quantity demanded Diagram …
Governments intervene in markets to try and overcome market failure. The government may also seek to improve the distribution of resources (greater equality). The aims of government intervention in markets include Stabilise prices Provide producers/farmers with a minimum income To avoid excessive prices for goods with important social welfare Discourage demerit goods/encourage merit good Forms …
Definition of Market Failure – This occurs when there is an inefficient allocation of resources in a free market. Market failure can occur due to a variety of reasons, such as monopoly (higher prices and less output), negative externalities (over-consumed and costs to third party) and public goods (usually not provided in a free market) …
Definition: Trade barriers are government policies which place restrictions on international trade. Trade barriers can either make trade more difficult and expensive (tariff barriers) or prevent trade completely (e.g. trade embargo) Examples of Trade Barriers Tariff Barriers. These are taxes on certain imports. They raise the price of imported goods making imports less competitive. Non-Tariff …
To overcome market failure, the government can use various policies. For example, to reduce consumption of demerit goods, they can increase taxes. Policies to overcome market failure Taxes on negative externalities Subsidies on positive externalities Laws and Regulations Electronic Road Pricing – a specific tax related to congestion Pollution Permits – giving firms the ability to …
Definition of Positive Externality: This occurs when the consumption or production of a good causes a benefit to a third party. For example: When you consume education you get a private benefit. But there are also benefits to the rest of society. E.g you are able to educate other people and therefore they benefit as …
Social benefit is the total benefit to society from producing or consuming a good/service. Social benefit includes all the private benefits plus any external benefits of production/consumption. If a good has significant external benefits, then the social benefit will be greater than the private benefit. Examples of social benefit If we cycle to work, the …