• 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)

    The OFT has investigated the grocery market on several occasions over the last decade. Researchers asked suppliers for their opinion on the level of negotiating power they felt they had with different retail customers. Their responses showed that they felt they had less bargaining power with the Big Four than with smaller chains and groceries.

  2. 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.

  1. Micro economics environment - Government intervention

    is the overdraft of the public sector. The sale of nationalised assets not only to raise money for the government but also reducing borrowing. Promote shareholdings Linked to the culture of enterprise where we all become a nation of property owners.

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

    making it quite costly, so this level of uncertainty is now resulting in final-salary pension scheme dying, according to The Economist, among the top 350 quoted companies, the proportion of final-salary schemes open to new members fell from 64% at the end of 2001 to 33% at the end of 2003.

  1. Free essay

    Characteristics of poverty in the UK

    However this may be due to the education of the person. A person with a lot more education than one with no education will most often get the better job. However many 22 yr old women may get pregnant and therefore have to pull out of education at a much

  2. The Importance of the Canadian Airline Industry.

    A third company, Pacific Western Airline (PWA), was also emerging as a powerful rival. Russ Baker, another successful pilot, had founded the airline, as Central British Columbia Airlines (CBCA), in 1946 and, when Alcan started constructing an aluminum smelter in Kitimat, B.C.

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

    Solar Power to power our vehicles and Wind Power and to be used in power stations. Price Elasticity of Supply of Oil (Product) Refers to the responsiveness of quantity supplied to a change in price. If quantity supplied changes by a smaller proportion than the price the good is said to be "price inelastic".

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

    This point however, must be evaluated; Can Tesco endure a loss in the short run, hoping it will attract customers? And will consumers fall into the trap, and then later on pay the price? The answer to the first question is logical; Tesco will balance the loss with profits made

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