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Government Intervention and Demerit Goods

Question

Discuss whether or not government intervention will correct the market failure caused by a demerit good.

Category:

Public Finance and Government Intervention

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Preview Answer

I. 🍃Introduction
- Brief explanation of the topic
- Importance of understanding the impact of taxes on demerit goods

II. Imposing Taxes on Demerit Goods
- Explanation of how taxes can be imposed or increased
- The effect of taxes on the price of demerit goods
- The impact of consumer awareness on the demand for demerit goods
- The expected contraction of demand due to taxes

III. Minimum Price Imposition
- Explanation of how a minimum price can be imposed
- The expected reduction of demand due to minimum price imposition
- The potential limitations of minimum price imposition

IV. Restrictions on Imports of Demerit Goods
- Explanation of how restrictions can be imposed on imports of demerit goods
- The expected impact of import restrictions on demand for demerit goods

V. Reasons Why Taxes Might Not Work
- The potential price inelasticity of demand for demerit goods
- The addictive nature of some demerit goods
- The possibility of the government setting taxes too high or too low
- The potential for the rich to be unaffected by taxes
- The possibility of producers not passing on taxes to consumers
- The limitations of minimum price imposition
- The potential for a surplus resulting from minimum price imposition

VI. 👉Conclusion
- Summary of the main points
- The importance of considering the potential limitations of taxes on demerit goods

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