Draw out a cap and trade scheme. Then, draw out what would likely happen to the tradeable permits market during an economic recession.
Demand for permits decrease as demand for companies' products decrease (no need so many permits) --> price drops, quantity stays the same.
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25
Using a graph, explain why larger subsidies may be needed for merit goods that are highly price inelastic.
Need big subsidy before big drop in price before quantity demanded increases by a little
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20
Provide a real-life example of how a subsidy may be used to address a positive externality (Details needed please!)
China = one of 3 biggest CO2 emitters and faces pollution, Chinese EV companies (e.g. BYD, Nio, Xpeng) have received tens of billions of subsidies
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20
Provide a real-life example of how an education campaign has been used to correct market failures.
Five-a-day campaign (5 portions of fruits + veggies), adopted by UK in early 2000s, as it reduces risk of heart disease & cancer, and intestinal benefits
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20
Provide a real-life example of how an indirect tax may be used to address a negative externality of consumption (Details needed please!)
E.g. 92% tax on e-cigarettes in Vermont, USA; previously only a standard sales tax which was cheaper than traditional cigs, ad valorem tax
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banana
Go to last place!
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seesaw
Swap points!
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shark
Other team loses 20 points!
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lifesaver
Give 10 points!
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25
Outline ONE advantage and THREE limitations of the use of legislation to correct market failures.
Command-and-control approach (forced to comply) vs. monitor & enforcement costs, time to implement, choose to break if penalties not high
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25
Define collective self-governance and provide a real-life example of how it can be used to correct market failures.
Plastic Free Challenge to correct neg. ext. of cons. (even prod.) of using plastics; social media - inspiring selfies + images + hashtag #plasticfreechallenge
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25
Using a graph, explain why indirect taxes may be ineffective at decreasing the quantity of a demerit good for products with inelastic PED.
Huge tax increase before you see a proportionally smaller reduction in quantity demanded (and hence quantity transacted)
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25
Outline ONE advantage and THREE disadvantages of a Cap and Trade Scheme
flexibility + internalize externality vs. job losses, MNC shift production, hard to determine correct cap level
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25
Outline TWO advantages and TWO limitations of the use of Pigouvian taxes to correct market failures.
Price incentive to reduce consumption, tax revenues vs. regressive, parallel markets, imperfect market info
