2.C.GOVERNMENT INTERVENTION

Quotes

Developing driving questions for GOVERNMENT INTERVENTION

Hocus pocus economics in Venezuela
NICOLÁS MADURO calls it "a really impressive magic formula". His paquetazo rojo (big red package) features a new currency that lops five zeroes off the nearly worthless bolívar, a sharp increase in the price of fuel and a rise in the minimum wage of more than 3,000%. Forget magic.

Government and the electric car
I'M TOOLING around Silicon Valley at the moment, participating in a few discussions on innovation. Since I've been out here, I've been thinking a bit about the prospects for electric car technology. The Bay Area might be the hybrid capital of the world, and Silicon Valley is the home base of Tesla Motors, an upstart competitor to Detroit and Japan in the race to build mass-market electric vehicles.

A reckless wager
WHEN prices rise, demand falls. Exceptions to the most basic rule of markets are curiosities-the kind of thing an economist might bore you with at a dinner party. Set carefully, minimum wages can provide such an example. But policymakers must not assume this is a cast-iron law.

Discuss your Driving questions in the Forum Below:

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Your dRIVING qUESTIONS:

What: INDIRECT tAXES

hOW:

Indirect taxes

Explain why governments impose indirect (excise) taxes.
Distinguish between specific and ad valorem taxes.
Draw diagrams to show specific and ad valorem taxes, and analyse their impact on market outcomes.
Discuss the consequences of imposing an indirect tax on the stakeholders in a market, including consumers, producers and the government.

Tax incidence and elasticity (HL)

Explain, using diagrams, how the incidence of indirect taxes on consumers and firms differ, depending on the price elasticity of demand and on the price elasticity of supply.

The prices of sin
MUCH ministerial brow-sweat has been devoted to turning Britons into healthier, better-adjusted citizens, but the public has a nasty habit of spoiling the party. New figures provoked hand-wringing this week when they suggested that British alcohol consumption is rising even as the French and Germans are drinking less.

Should America tax soda?
AS THE health care reform debate has proceeded, and the search for revenue sources has continued, a frequent target for a new tax has been soda products-sugary soft drinks associated with high levels of obesity. It's generally felt that taxing such beverages would serve two purposes: raising needed revenue and reducing obesity, thereby saving on health care costs.

American Beverage Association Works to Protect Consumer Choice | American Beverage Association
Soda taxes won't make people healthier - just poorer. Learn about the ABA's work with community health organizations to reduce sugar consumption and spread awareness about regulations limiting consumer beverage choices.

Pros and Cons of the Soda Tax-Where, Why and How It's Collected
Depending on what part of the country you hail from, you might call it pop, soda, or a soft drink. If you live one of a handful of American cities, you'll pay more for the luxury of enjoying one. Several U.S. locations have jumped on the "soda tax" bandwagon and more intend to do so in the near future.

AMA Adopts Policy to Reduce Consumption of Sugar-Sweetened Beverages
The AMA adopted policy, as part of a comprehensive report on sugar-sweetened beverages, aimed at reducing the amount of sugar Americans consume

Sugary Beverages Linked to Obesity in 4- and 5-Year-Olds
For Release: August 5, 2013 Although sugar-sweetened beverage consumption has been linked to weight status in older children, its effect on preschoolers has been less clear. The study, " Sugar-Sweetened Beverages and Weight Gain in 2- to5-Year-Old Children," in the September 2013 Pediatrics (published online Aug.

Ditch sugar or raise prices? Drinks-makers face a new tax
THAT hissing noise is the sound of the British pop industry being shaken up. On April 6th a new tax on sugary soft drinks comes into effect. It is meant to curb obesity, which costs the health service an estimated £6.1bn ($8.6bn) each year.

Chicago's soda tax is repealed
IT MUST have been one of the shortest-lived taxes in the history of Illinois. On October 11th lawmakers of Cook County, which includes Chicago, overwhelmingly voted to repeal the county's soda tax. It had come into effect on August 2nd, after a delay thanks to a lawsuit by the Illinois Retail Merchants Association, and will cease to exist on December 1st.

WHAT EXACTLY IS A DEADWEIGHT LOSS?

The Economist Log-in: dan.bish@houston.nae.school Password: humanities

Innovation is an essential part of dealing with climate change
G OVERNMENTS ARE lining up to set new climate targets for the middle of the century. This week Japan said that it would eliminate all greenhouse gases (see article). In the past month or so China and South Korea have declared that their economies will be carbon-neutral, meaning that they will put no more carbon dioxide into the atmosphere than they take out.

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Assessment

Use the exemplar question and answer and the teacher comments and mark scheme to increase your understanding of how to write a successful part (a) to Paper 1. What mark would you give the answer below and why?

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Now write a full paper 1 (a) answer to the question below under exam conditions:

The government decides to impose an indirect tax on wine of €0.15 per litre.

(a) Using a diagram, analyse the effects on market outcomes. [10 marks]

Subsidies

Covid: Norwegian Air faces 'very uncertain future'
Struggling airline Norwegian Air faces a battle for survival after the Norwegian government said it would not provide further backing. Extra loan guarantees would be too "risky" and "not defensible", the country's government said. The airline said it faced a "very uncertain future" with "ventilator support" needed to survive the winter.

Explain why governments provide subsidies and describe examples of subsidies.
Draw a diagram to show a subsidy and analyse the impact of a subsidy on market outcomes.
Discuss the consequences of providing a subsidy on the stakeholders in a market, including consumers, producers and the government.
HL
Plot demand and supply curves for a product from linear functions and then illustrate and/or calculate the effect of the provision of a subsidy on the market (on price, quantity, consumer expenditure, producer revenue, government revenue, consumer surplus and producer surplus).

Can the solar industry survive without subsidies?
A LITTLE over a decade ago, when JinkoSolar, a Shanghai-based company, entered the solar business, it was such a novice that when it visited international trade fairs, all it had was a bare table and a board with its name scribbled on it.

Milking taxpayers
THE father of Major Major, a character in Catch 22, a novel by Joseph Heller, makes a good living not growing alfalfa. "The more alfalfa he did not grow, the more money the government gave him, and he spent every penny he didn't earn on new land to increase the amount of alfalfa he did not produce."

The global addiction to energy subsidies
ENERGY prices have been falling for a year. Over the last month that trend has accelerated. On July 24th, the price of a barrel of oil in America reached a low of $48. In spite of this, governments are still splurging on subsidies to prop up production.

Why fertiliser subsidies in Africa have not worked
ASK Anesi Chishiko about fertiliser, and she points to her goats and her trees. Manure and leaves are all that she folds into the earth on her family farm in Zambia. Inorganic fertiliser is too costly: the government offers subsidies, but only "clever people" know how to get them, she explains.

INTRODUCTION TO SUBSIDIES?

IS A WAGE SUBSIDY A GOOD IDEA? EDMUND PHELPS THINKS SO.

Price controls: Tenants or Tennents? when should we use price controls?

Construct a price ceiling diagram.
Analyse the consequences of implementing a price ceiling.
Discuss the consequences of a price ceiling for different stakeholders.
Discuss solutions to price ceilings.
Construct a price floor diagram.
Analyse the consequences of implementing a price floor.
Discuss the consequences of a price floor for different stakeholders.
Discuss solutions to price floors.
Calculate the effects of price ceilings and price floors from diagrams.
Construct an indirect tax diagram.

What harm do minimum wages do?
F OR A LONG TIME economists-whose median income, according to a survey of the American Economic Association ( AEA), is $104,000 a year-considered minimum wages to be harmful. A survey of AEA members in 1992 found that 79% of respondents agreed that a minimum wage increases unemployment among young and low-skilled workers.

Price ceilings (maxiMUM PRICES)

Impacts on market outcomes:

Shortages
Non-price rationing (queues, coupons, favoritism)
Underground or parallel markets
Under allocation of resources to the good and allocative inefficiency
Negative welfare impacts see below

Stakeholders:

Consumers partly win and partly lose, how?
Producers are worse off, how?
Workers may lose jobs
Government may gain in popularity

Common examples:

Rent controls
Food price controls (benefits consumers)

The Impact of Price Ceilings (maximum prices) on shoppers in Venezuela, Listen to the NPR radio piece that gives a Caracas housewife Anny Valero's daily experiences of price controls.

The Nightmare Of Grocery Shopping In Venezuela
For Caracas housewife Anny Valero, today is grocery day - whether she likes it or not. Here's why: It's Monday, and if Valero doesn't go now, she'll have to wait four more days to buy food. In Venezuela, government supermarkets sell price-controlled food, making them far cheaper than private stores.

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Rent Control in Mumbai | Microeconomics Videos
In the video, Alex Tabarrok talks with Vaidehi Tandel, Reuben Abraham, and Kshitij Batra at the IDFC Institute, a think tank in Mumbai that focuses on issues surrounding urban infrastructure. They take a look at the consequences of rent control in Mumbai, where many tenants are paying for their flats at 1940s rates.

Price floors (minimum prices)

Scotland's minimum price for alcohol may have unexpected effects
ONLY about a dozen countries, mainly in eastern Europe, drink more than the British. Adult Britons each glug the equivalent of 500 pints of beer a year, a habit which kills 7,000 of them annually. The Scots, who are the thirstiest of the bunch, are determined to cut down.

Impacts on market outcomes:

Surpluses
Disposal of surpluses
Firm inefficiency
Overallocation of resources to the production of the good and allocative inefficiency
Negative welfare impacts see below (these are significant if government has to purchase the surplus)

Stakeholders:

Consumers are worse off as they must pay a higher price for the good
Producers gain as they receive a higher price and produce a larger quantity and will receive higher revenues if government buys up the surplus
Workers gain as employment increases
Government and tax payers lose as a result of the opportunity costs of purchasing the surplus

Common examples:

Support producers incomes (particularly farmers)
Minimum wages

2 further case studies aGRICULTURAL INCOME SUPPORT AND MINIMUM WAGES...

tHE EUROPEAN unions (EU's) common Agricultural policy (CAP)

A European Union view of the CAP:

A independent view of the CAP:

case study: MINIMUM WAGES IN THE USA:

HOW: Utilize CLASSPE to effectively evaluate an economic controversy/discussion

WHY: CLASPPE is a useful tool for evaluation in Economics and is vital to good performance on Paper 1 part B, the IA Commentary and the Paper 3 Policy Paper (HL)

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What harm do minimum wages do?
F OR A LONG TIME economists-whose median income, according to a survey of the American Economic Association ( AEA), is $104,000 a year-considered minimum wages to be harmful. A survey of AEA members in 1992 found that 79% of respondents agreed that a minimum wage increases unemployment among young and low-skilled workers.

Pay dirt
ON MAY 19th the Los Angeles city council voted to raise its minimum wage, from $9 an hour to $15 an hour. Los Angeles is just one of many American cities using a rise in the minimum wage to try to address poverty and inequality.

Economists argue about minimum wages
JUST what is the point of a minimum wage? It seems a straightforward enough question to answer. Minimum wages are designed to protect vulnerable workers who might otherwise lack the bargaining power to command a decent pay package. They are a means to limit severe poverty among those in work.

A study suggests that higher minimum wages hit poorer bosses' pockets
A MINIMUM WAGE is supposed to redistribute money from rich to poor. But economists disagree about whether it actually does so. Some researchers, for example, have found that, in America, Canada and Europe, raising the minimum wage tends to decrease employment among the least-skilled workers, as firms downsize to trim costs.

Minimum wage will rise in 18 states in 2018 - but no one can agree on the impact it will have
Eighteen states, including California and New York, will have higher minimum wages beginning in January. Supporters of the increases say it will help millions of working class Americans, but opponents fear increased unemployment and jobs displaced by automation. Many states have annual adjustments or scheduled increases above the federal minimum wage of $7.25.

Discussion topic: Amazon and labour markets
Specification: labour markets - Amazon has 'decided to lead on pay'. Outline what this means for Amazon's employees in the UK and the USA. - Using a diagram, analyse the impact of Amazon's decision to increase its minimum wage. - Given that Amazon is 'the second largest employer in the US', one could argue that it has monopsony power.

The federal minimum wage is becoming irrelevant
I T IS NORMAL for America's federal minimum wage to go through periods of declining influence. It is fixed in cash terms, meaning it bites hardest whenever Congress raises it, then declines in relevance as earnings grow. Between 1998 and 2006, for example, the federal minimum stayed constant at $5.15 per hour, while average wages grew by around 30%.

Greg Mankiw's Blog
Here is a good decision, but politically a tough one for any elected official, as reported in USA Today: Mayor vetoes Chicago's 'living wage' ordinance aimed at big retailers Mayor Richard Daley vetoed an ordinance Monday that would have required mega-retailers to pay their workers more than other employers after some of the nation's largest stores including Wal-Mart Stores warned that the measure would keep them from opening their doors within the city's limits.

Opinion | Liberals and Wages
Paul Krugman Hillary Clinton gave her first big economic speech on Monday, and progressives were by and large gratified. For Mrs. Clinton's core message was that the federal government can and should use its influence to push for higher wages. Conservatives, however - at least those who could stop chanting "Benghazi!

minimum wage
Sen. Bernie Sanders, I-Vt., joins Judy Woodruff to discuss the chances of avoiding a government shutdown, rethinking American trade policy and the introduction of legislation to raise the minimum wage to $15, what Democrats need to do to build a...

U.S. Bureau of Labor Statistics
In October, unemployment rates were lower in 37 states and the District of Columbia, higher in 8 states, and stable in 5 states. Nonfarm payroll employment increased in 32 states, decreased in 2 states, and was essentially unchanged in 16 states and the District.

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Apply economic analysis (CLASPP) TO DECIDE WHETHER PRICE CONTROLS SHOULD BE USED AND IN WHICH MARKETS.

Explain why governments impose price ceilings and describe examples of price ceilings, including food price controls and rent controls.
Draw a diagram to show a price ceiling and analyse the impacts of a price ceiling on market outcomes.
Examine the possible consequences of a price ceiling, including shortages, inefficient resource allocation, welfare impacts, underground parallel markets and non-price rationing mechanisms.
Discuss the consequences of imposing a price ceiling on the stakeholders in a market, including consumers, producers and the government.
Explain why governments impose price floors and describe examples of price floors, including price support for agricultural products and minimum wages.
Draw a diagram of a price floor and analyse the impacts of a price floor on market outcomes.
Examine the possible consequences of a price floor, including surpluses and government measures to dispose of the surpluses, inefficient resource allocation and welfare impacts.
Discuss the consequences of imposing a price floor on the stakeholders in a market, including consumers, producers and the government.

WRITING A PRACTICE IA COMMENTARY PIECE - (The following should be used in conjunction with the INTERNAL ASSESSMENT'S PAGES)

WHY - UNDERSTANDING AND PRACTICING THE COMMENTARY STYLE IS CRUCIAL TO IA SUCCESS

Almost 30% of People In the World Are Obese or Overweight
A new report shows over 2 billion people are overweight or obese worldwide.

Even with one cigarette a day, odds of early death are higher
Smokers who go through much less than a pack of cigarettes a day still have a higher risk of an early death than non-smokers, a new study suggests. "There is no safe level of cigarette smoking," said lead study author Maki Inoue-Choi, a researcher at the National Cancer Institute in Rockville, Maryland.

Alcohol-related liver deaths increase sharply
In the past decade, people ages 25 to 34 had the highest increase in cirrhosis deaths - an average 10.5 percent a year - of the demographic groups examined, researchers reported. Share story Deaths from liver disease have increased sharply in recent years in the United States, according to a study published in the British Medical Journal (BMJ).

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driving questions forum class of 2021

DRIVING QUESTION 1 - UNDER WHAT CONDITIONS SHOULD GOVERNMENTS INTERVENE IN THE MARKET?

DRIVING QUESTION 2 - DO WE NEED GOVERNMENT INTERVENTION IN A DEVELOPED ECONOMY?

DRIVING QUESTION 3 - UNDER WHAT CONDITIONS IS IT APPROPRIATE TO TAKE RESOURCES FROM ONE GROUP OF PEOPLE AND DISTRIBUTE IT TO ANOTHER?