(A Level) Government policies to correct market failure

Learning objectives

Analyse how a specific or ad valorem tax set equal to marginal external cost, or a subsidy equal to marginal external benefit, moves output to the social optimum

Evaluate regulation, such as emission limits and bans, against taxes as ways of reducing negative externalities

Explain how tradable pollution permits cap total emissions and let firms trade the right to pollute, and compare permits with taxes

Assess direct provision and provision of information as ways of correcting the non-provision of public goods and the under-consumption of merit goods

Define government failure and analyse its causes and consequences, such as poor information, unintended effects, administrative cost and political pressure