• 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)

    Technically, none is a monopsonist because none is the sole buyer of a particular category of products. Tesco, for example, is not the sole buyer of soap powders or frozen chicken. However because of their size, the big four supermarket chains enjoy much greater buying power than smaller buyers.

  2. Free essay

    Characteristics of poverty in the UK

    However for everyone else this will not make a difference for them well not for at least a few years or even decades so trying to tackle poverty by this method would be not very appropriate. Raising child benefits is quite a decent method because many of the kids that

  1. Micro economics environment - Government intervention

    the profits will go to the shareholders and not as they would have done into the states coffers. Unemployment This will worsen as that part of the labour force previously providing the uneconomic services is shed, many argue that a balance sheet mentality disguises other costs when people are made

  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. At What Level (if any) Should Government Intervene to Promote the Competitiveness of Businesses?

    Many people has argued that this strategy was adopted by almost all developed countries, like the US and Germany, during their rapid industrial development period. Both the US and Germany had high tariffs helping protect infant industries from competition with more efficient firms in Britain during 19th century5.

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

    until 6 April 2002, SERPS was based on ones record of National Insurance contribution and level of earning as an employee. The additional state pension one for build up from 6 April 2002 is called the State Second Pension. This is the government's reform of SERPS to provide a more

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

    However as OPEC acts like a cartel it chooses to restrict Oil supply to keep prices high (diagram D) making the supply of Oil highly Price Inelastic. This means that if Prices were to rise supply would only increase marginally if at all.

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

    The response by the Office of Fair Trading (OFT) was to introduce a voluntary code of practice, to be entered into by the large four supermarkets. Many of the 12 original provisions recommended by the Competition Commission were weakened. A later review by the OFT revealed that many practices identified in 2000 were still occurring, and a survey of

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