mrshearingeconomics
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  • AS level 2015
    • Induction day
    • Year 11 Induction
    • Theme 1 >
      • 1.1 Nature of economics >
        • 1.1.1 Economics as a social science
        • 1.1.2 Positive and normative economic statements
        • 1.1.3 The economic problem
        • 1.1.4 Production possibility frontiers
        • 1.1.5 Specialisation and the division of labour
        • 1.1.6 Free market economies, mixed economy and command economy
      • 1.2 How markets work >
        • 1.2.1 Rational decision making
        • 1.2.2 Demand
        • 1.2.3 Price, income and cross elasticities of demand
        • 1.2.4 Supply
        • 1.2.5 Elasticity of supply
        • 1.2.6 Price determination
        • 1.2.7 Price mechanism
        • 1.2.8 Consumer and producer surplus
        • 1.2.9 Indirect taxes and subsidies
        • 1.2.10 Alternative views of consumer behaviour
      • 1.3 Market failure >
        • 1.3.1 Types of market failure
        • 1.3.2 Externalities
        • 1.3.3 Public goods
        • 1.3.4 Information gaps
      • 1.4 Government intervention >
        • 1.4.1 Government intervention in markets
        • 1.4.2 Government failure
    • Theme 2 >
      • 2.1 Measures of economic performance >
        • 2.1.1 Economic growth
        • 2.1.2 Inflation
        • 2.1.3 Employment and unemployment
        • 2.1.4 Balance of payments
      • 2.2 Aggregate demand (AD) >
        • 2.2.1 The characteristics of AD
        • 2.2.2 Consumption (C)
        • 2.2.3 Investment (I)
        • 2.2.4 Government expenditure (G)
        • 2.2.5 Net trade (X-M)
      • 2.3 Aggregate supply (AS) >
        • 2.3.1 The characteristics of AS
      • 2.4 National income >
        • 2.4.1 National income
        • 2.4.3 Equilibrium levels of real national output
        • 2.4.4 The multiplier
      • 2.5 Economic growth >
        • 2.5.1 Causes of growth
        • 2.5.2 Output gaps
        • 2.5.3 Trade (business) cycle
      • 2.6 Macroeconomic objectives and policies >
        • 2.6.1 Possible macroeconomic objectives
        • 2.6.2 Demand-side policies
        • 2.6.3. Supply-side policies
        • 2.6.4 Conflicts and tradeoffs between objectives and policies
        • Financial Crisis v Great depression
      • Class 2016
  • A level 2016
    • Theme 3 >
      • 3.1. Business Growth >
        • 3.1.1 Sizes and types of firms
        • 3.1.2 Business growth
        • 3.1.3 Demergers
      • 3.2 Business Objectives >
        • 3.2.1 Business objectives
      • 3.3 Revenue, Costs & Profits >
        • 3.3.1 Revenue
        • 3.3.2 Costs
        • 3.3.3 Economies and diseconomies of scale
        • 3.3.4 Normal profits, supernormal profits & losses
      • 3.4 Market Structures >
        • 3.4.1 Efficiency
        • 3.4.2 Perfect competition
        • 3.4.3 Monopolistic competition
        • 3.4.4 Oligopoly
        • 3.4.5 Monopoly
        • 3.4.6 Monopsony
        • 3.4.7 Contestability
      • 3.5 Labour market >
        • 3.5.1 Demand for labour
        • 3.5.2 Supply of labour
        • 3.5.3 Wage determination in competitive and non-competitive markets
      • 3.6 Government intervention >
        • 3.6.1 Government intervention
        • 3.6.2 The impact of government intervention
    • Theme 4 >
      • 4.1 International economics >
        • 4.1.1 Globalisation
        • 4.1.2 Specialisation & Trade
        • 4.1.3 Pattern of trade
        • 4.1.4 Terms of trade
        • 4.1.5 Trading blocs & WTO
        • 4.1.6 Restrictions on free trade
        • 4.1.7 Balance of Payments
        • 4.1.8 Exchange Rates
        • 4.1.9 International Competiveness
      • 4.2 Poverty and inequality >
        • 4.2.1 Absolute & Relative Poverty
        • 4.2.2 Inequality
      • 4.3 Emerging and developing economies >
        • 4.3.1 Measures of development
        • 4.3.2 Factors influence growth & dev
        • 4.3.3 Stratergies for growth & dev
      • 4.4 The financial sector >
        • 4.4.1 Role financial markets
        • 4.4.2 MF in Financial markets
        • 4.4.3 Role of Central Banks
      • 4.5 Role of the state in the macroeconomy >
        • 4.5.1 Public expendicture
        • 4.5.2 Taxation
        • 4.5.3 Public sector finances
        • 4.5.4 Macro policies
  • Class List
    • Year 12
    • Year 13

ILO

Evaluate the effectiveness of using minimum pricing as a solution to market failure.


Minimum Pricing

How it would work?
Picture
A minimum price is set above the equilibirum.

The increase in price creates a disequilibrium trough a shortage (S>D)

The rise in price leads to a movement along the demand curve from B to A. Reducing the level of consumption.

Now the economic agents are paying a greater PC which should reflect the EC that they generate

Advantages

> Raising the price is an effective means of reducing consumption as it impacts consumers willingness and ability to buy the demerit G/S.

> Tax receipts from VAT or excise duty where the indirect tax is a percentage of the selling price will rise. This will allow for greater expendicture on merit goods and services.

> A minimum price can target markets where the nature of production and supply encourage excessive demand such as 3 bottles of wine for £10, or happy hours.

Disadvantages

> It'll lead to greater levels of inequality and poverty, as it takes up a greater percentage of income for low earners.

> Create black markets or encourage home production. This can lead to an EC and MF will still exist.

> Identifying an effective price is difficult as many demerit goods and services are price inelastic. Therefore an increase in price will lead to a less than proportional fall in demand.

Home Work:

tesco_backs_minimum_price_for_alcohol_sales.doc
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File Type: doc
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