-Demand for product may be inelastic, so the tax is not effective.
-Taxes are regressive if they tax low-income individuals more than high-income individuals (e.g. taxes on smoking).
-Estimating the true social cost is more of an art than a science
-Taxes are heavy-handed in terms of who is doing the most damage (e.g. the social cost of a moderate drinker is lower than that of a binge drinker)
-Governments may just use it as an excuse to generate more revenue . . . and may not hypothecate the tax revenue they have collected.
A Commodity is a basic good interchangeable with other commodities of the same type.
Commodities are most often used as inputs in the production of other goods or services.
Market failure occurs where the price mechanism fails to allocate scarce resources efficiently (allocatively efficiently) or when the operation of market forces leads to a net social welfare loss.
Benefit . . . Cost
-Drivers only consider their private costs (e.g. fuel)
-Being on the road creates a negative externality- the road is now more crowded.
-Too many cars are on the road and everybody wastes their time in traffic.
Any of the following:
-Buffer stock scheme is expensive.
-It distorts incentives for production and consumption- resource allocation is distorted.
-Improvements in farming technology will continue to increase supply . . . costing ever more money.
-Greater price stability attracts more producers . . . further increasing supply.
-Easily open to political interference, to benefit those loyal to government (e.g. Thailand)
Occurs when producing or consuming a good causes an impact on third parties not directly related to the transaction.
-They are necessary for production of the final good
-There are no substitutes their use.
