• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

In 2001 in the UK a widespread disease among cattle and sheep closed off large parts of the countryside. The government decided to give aid to agriculture but not to tourism, both of which were badly affected. Comment on the governments actions in term

Extracts from this document...

Introduction

Q. In 2001 in the UK a widespread disease among cattle and sheep closed off large parts of the countryside. The government decided to give aid to agriculture but not to tourism, both of which were badly affected. Comment on the government's actions in terms of allocative efficiency and equity. [ A Level 2003 Paper 4] Ans. Allocative efficiency occurs when resources are allocated to maximize the net benefit attained through their use. It occurs when consumers' demands are satisfied by using the resources to produce goods and services consumers want. It involves the choice of different points on the production possibility curve which shoes the combinations of goods and services that an economy can produce using its available resources. Once allocative efficiency and productive efficiency (where firms are producing at minimum average cost) is achieved and the two of them coincide, then Pareto optimality is achieved. Pareto optimality means that it is impossible to produce more of one type of good or service without reducing the production of another i.e. ...read more.

Middle

Higher profits and more employment will enable an increase in demand for other sorts of commodities too. This demand would cause rise in sales and hence firms will be encouraged to increase their output and in the process hire workers. Therefore via the multiplier the country's output, employment and income would rise. Since food is a basic necessity it obviously increases consumers' satisfaction. Since livestock products will increase consumers' satisfaction and resources are being allocated there , the government may be targeting to achieve allocative efficiency in this way. However, subsidies and other financial aid means those farmers will not be motivated to increase efficiency and produce at the lowest possible average cost. Hence productive inefficiency may arise. In effect, net economic welfare will be reduced and if the productive inefficiency is not offset by allocative efficiency, Pareto optimality will not be achieved. One of the indirect factors of decline in tourism industry is the disease of the cattle and sheep. Governments' direct aid will not benefit the tourism industry if the problem of the livestock industry persists. ...read more.

Conclusion

And farmers will only be able to produce quality livestock products if aid is provided and especially because the economy is hit with a crisis. Therefore with low demand for livestock product the farmers would not be able to recover if this sector is left to free market forces alone. But the tourism sector can be left to free market forces following an appealing advertising campaign. From the taxpayers' viewpoint, equality is further questioned because subsidies from the government are financed from taxes. There are conflicts on how revenue from taxation must be used. The scheme of financing through taxation means that money is taken from the working population and is being distributed to a declining and currently a productively inefficient agricultural industry. Therefore it is not possible for the government to maintain equality as well as allocative efficiency. Both aspects contain an element of value judgments and the optimal level of the economy is difficult to locate and judge. Moreover, since the production possibility frontier contains different points showing allocative efficiency, it is difficult to conclude which point provides greater equity. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Markets & Managing the Economy section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Markets & Managing the Economy essays

  1. Marked by a teacher

    Supermarkets in UK - An oligopily

    5 star(s)

    Threat of substitutes It's more difficult for Asda to try to raise prices and make greater profits if there are close substitutes available at Tesco But, in some cases, customers may be reluctant to switch to another product even if it offers an advantage.

  2. Free essay

    Characteristics of poverty in the UK

    therefore it may lead to helping the youth of the societies to become well educated and so it will lead to our economy continuing to be strong and prosper. This however will not affect the adults without kids including the pensioners.

  1. Is the Government to Blame for Higher Petrol Prices?

    Price and Output both increase to a new equilibrium. A decrease in Demand means that less is demanded at each and every price. The Demand curve shifts inwards to the left (diagram I). Price and Output both decrease to a new equilibrium.

  2. Micro economics environment - Government intervention

    If the practise is found no to be in favour of the public the government will move in.

  1. Finance and Foundings in Tourism Industry

    These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholder's. The balance sheet is one of the most important pieces of financial information issued by a company.

  2. Agrarian Discontent in the Late 1800's - Why the Farmers Were Wrong

    A farmer named Dyke discovers that the railroad has increased their freight charges from two to five cents a pound. This new rate, "...ate up every cent of his gains. He stood there ruined." (Doc. H). The railroads regularly used rebates and drawbacks to help win the business of large

  1. What are the origins of the Pension Crisis and what can be done to ...

    Women reaching the age of 69 before 2010 normally need 39 qualifying years, but this will increase to 44 as their retirement age moves from 60 to 65 by 2020. Some people do not get the full basic state pension because they have not paid enough contribution.

  2. What Are The Effects Of Tescos Oligopolistic Market Structure, On Both Consumers And Producers?

    Planning laws make it difficult for new entrants to open stores. The current land bank of 319 sites across the big four retailers-Tesco, ASDA, Sainsbury's, and Morrisons, could obstruct new competition and perhaps harm consumers. At current, a supermarket can develop a site it already owns without approval from the competition authorities.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work