Free market and command
Free market:
- UK - ranked 7th most free economy: benefit from wider variety/better quality goods, higher incomes and lower unemployment
Command economy:
- North Korea:
- benefit from low levels of inequality but suffers food shortages, high inflation, corruption
20% affected by malnutrition
negative externalities
- Negative production: BP Gulf Oil spill:
- 2010 BP spilled over 35,000 barrels of oil into Gulf of Mexico: cost BP $4 billion to contain
and clean up the mess and another $5 billion in penalties
- more than $700 million lost in fishing - Negative consumption: Passive smoking:
- linked to number of illnesses, cancer and heart disease
- healthcare expenditure due to it 5.7% of global
positive externalities
- Production: spending public transport:
- gov claims every £1 spend on public transport returns £4 to wider economy
- reduced transport costs benefit businesses:
- increase labour supply, connect with suppliers/consumers - Positive consumption: Education spending:
- 2024-2025: £116 billion
- human capital investments associated with higher GDP and lower inequality
indirect taxes on demerit goods
Tobacco:
- around £9.80 and raises £8.8 bn in revenue
- however gov loses £2.2 bn tax rev every year due to tobacco smuggling
- Ad Valorem:
- VAT at 20% - Sugar tax:
- specific tax at 20p to reduce consumption of sugar and money raised invested in school sports and breakfast clubs
subsidies
EU Farming subsidy:
- common agricultural policy
- costs EU £50bn per year
- involved direct payments to farmers to reduce cost/encourage farming ensuring consumers have stable/affordable supply of food
EV:
- argue wasteful: leads to overproduction = dumping on developing nations and farming only generates 6% of EU GDP but takes up 30% of budget
minimum prices
Success:
Alcohol:
- 2018 scottish gov introduced min price of 50p per unit of alcohol to reduce consumption of cheap alcohol
- by end of 2018, volume of alcohol sold fell 3% from 2017
Less successful:
- EU for agriculture/farming
- lead to over production and then dumping in developing countries
Maximum prices and salary caps
Salary caps:
- 2017, previously proposed by labour gov: 20:1 limit but could make difficult to recruit highly qualified CEOs who would prefer to work for other firms
Max rent:
- ensure low income households can afford rent and increasing geographical mobility of labour
- but could deter investment = shortages/shabbier properties
Government regulation/Awareness campaigns
- Encourage to cycle:
- 2017, £1.2 bn strategy with over £100 m spent improving cycling infrastructure - Road safety: THINK! Campaign:
- launched 2000
- decade following launch, road deaths in UK reduced by 46%
- adverts played in cinemas/social media on road safety
