Question number 3 from What would Keynes do? – If I enjoy drinking beer. How much should I drink? Key quote “My only regret in life is that I did not drink more champagne.” John Maynard Keynes. If something is good to do – does it mean it is good to do it to excess? This …
An examination of consumer and producer sovereignty. Also, an evaluation of which is stronger – who drives markets – is it, consumers or producers? Definition consumer sovereignty The ability and freedom of consumers to choose from a range of different goods and services. It means that ultimately it is consumers who will decide what is …
A regressive tax is a tax which takes a higher percentage of tax revenue from those on low incomes. As income increases, the proportion of your income paid in tax falls. Suppose there is a poll tax of £3,000 (paid regardless of income) In this case, the person earning £10,000 is paying 30% of their …
Readers Question: State intervention is necessary to maximize social welfare but intervention often comes at a heavy price. So why not rely on the market system to tackle the problem? It is one of the great debates of economics – How much should the government intervene in the economy. Firstly we have to consider occasions …
To overcome market failure, the government may place laws and regulations which prohibit certain behaviour and actions. Regulations can limit or prevent: Demerit goods (alcohol, drugs, smoking) Goods with negative externalities (burning of coal) Abuse of monopoly power. Exploitation of labour. Examples of laws and regulation Legal age for smoking (18) Prohibition on certain classes …
This theory suggests that consumer spending patterns are heavily influenced by the way goods are presented. Changing the way goods are sold/presented to a consumer can strongly influence what is bought. Choice architecture is a method to retain consumer sovereignty (the right to choose) but nudging consumers to make certain choices. The idea of choice …
Explanation of why government intervention to try and correct market failure may result in government failure. Summary Market failure is a socially inefficient allocation of resources in a free market. Market failure can occur for various reasons Externalities Demerit/merit goods Public goods Monopoly power Government failure occurs when government intervention results in a more inefficient …
Information failure is a type of market failure where individuals or firms have a lack of information about economic decisions. There are different types of information failure: Information asymmetries – where one party has access to information that another party doesn’t. For example, the seller of a car may know it has some problem, but …