Chapter 9 - Government Intervention

Y12 Economics - Period 3-4

I hope you are able to concentrate on these tasks and can work on them in groups. I would have review the activity in two parts as a whole class activity. You can do this on the white board if you wish

It is important that you are able to work while we have the disruptions to school caused by the weather. The request for examples is vital as they provide your analysis with reality and permits judgements to be made more clearly.


Learn the three main reasons for Government Intervention

- Market Failure
- Wealth Distribution
- Economic Performance

For each reasons identify the rationale/justification for Government intervention. You must use examples, contrasting if possible, explain each, (to prove you understand)

Try to keep the economics and the politics separare. Explaining the points of view of different political options could be one way of tackling this. Remember that mainstream political opinion (Conservative/Liberal/Labour) tend to want similar things, increased wealth, welfare and national security, but see different ways to do this.

Learn three ways that Government might Intervene

- Legislation
- Financial
- Regulation

For each way, identify the methods the interventions work. This will involve diagrams for the first method.

Ensure that you descibe each method with appropriate examples.

dealing with externalities

http://www.economicshelp.org/blog/economics/carbon-tax-pros-and-cons/

http://www.economicshelp.org/blog/economics/carbon-trading-schemes/

Discuss the role that Pollution Permits could play in reducing global warming?

Pollution permits are schemes to limit the amount of pollution created. Firms could be given quotas to pollute a certain amount of carbon dioxide. If the firms pollute more then they would have to buy more permits from other firms. If they pollute less than their quota then they could sell their permits to other firms. There is a clear incentive to pollute less and develop more efficient production methods, in order to reduce pollution. This scheme creates a market incentive to reduce pollution, because the more you pollute the more you pay. It is a way of charging firms for the negative externalities that they create.

However, there are some difficulties with the scheme. Firstly, it is difficult to know how many quotas to give out. If the government is too generous then pollution levels may not fall. If they are too strict with quotas it may restrict business. A simpler solution may be to simply tax production which causes pollution; this would raise revenue rather for the government as well.

Another problem of the scheme is that it is quite costly to administer. It is costly to set up and costly to monitor how much pollution a firm creates. There is also the scope for firms to cheat and exceed their output quotas without knowing - it is difficult to monitor pollution levels, it may require self-monitoring by firms.

Another issue is that global warming is a global problem. Therefore, to be effective it needs global co-operation. If some countries don't take part, multinationals may move to these areas and pollute their. If the pollution permit scheme is international, it may cause developed countries to buy permits of poor countries and this will hamper economic development in developing countries.

Carbon Trading May Not Be working

This report describes how the the weak Copenhagen deal reduced (!) the price of carbon emissions:

http://news.bbc.co.uk/1/hi/business/8425293.stm