Market Failure and Government Intervention - Types of government intervention
3 important questions on Market Failure and Government Intervention - Types of government intervention
Polluter Pays Principle
Any measure, such as a green tax, whereby the polluter pays explicitly for the pollution caused.
Regulation, Standards, Legal Controls
- Often over corrects market failure, resulting in allocative efficiency still not being achieved.
- Setting standards requires accurate information which is not always possible.
- Regulations only as effective as the chance of getting caught multiplied by the sanctions.
Government Information Provision
Especially relevant with respect to merit and demerit goods.
- However if PED is inelastic, unlikely to decrease consumption of demerit good.
- If PED is elastic unlikely to increase consumption of a merit good without change in price.
- Expensive to implement?
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