State whether each of the following statements is positive (P) or normative (N).
All Western governments ought to agree to co-ordinate their economic policies, otherwise important objectives such as maintaining a high rate of economic growth and high employment levels will not be attainable.
If industrial policy is designed to promote a high rate of economic growth and high employment levels, then it must be one element in general economic policy.
If a firm is paid a subsidy for every unit of output it produces within a given time period, then its output will be higher and the price of the product lower than would otherwise be the case.
All industrial policies should be directed towards increasing the satisfaction of consumers rather than towards increasing the profits of producers.
There appears to be a general consensus amongst voters that governments ought to intervene in order to influence the pattern of industrial activity.
It could be argued that the example given in 1.3 is implausible. Why would a government concerned about voting support and good relations with business impose a tax which produced the negative feedback effects listed in 1.3.2? Presumably, there would be gainers as well as losers.
Can you identify the gainers?
The (highly simplified) example in 1.3 uses the case of a pollution tax. Now consider the case in which the government decides to reduce pollution by fixing a target output for the industry below the equilibrium output and licensing each firm to produce a maximum amount.
Using simple supply and demand analysis, compare the feedback effects in the ‘licensing’ case with the ‘tax’ case.
It is common for citizens to subscribe to lobbying groups designed to influence government policy in their favour. Automobile associations lobby for better roads, ex-service organizations seek better war pensions, societies representing the disabled demand better health benefits and services, and so on. However, it has been observed that many of these groups offer services which have nothing directly to do with their main object but which are ‘tied’ to membership. Automobile associations act as travel agents and insurers, ex-service organizations arrange visits to war graves, and societies representing the disabled run holiday homes. Assuming that membership of such lobbying groups is voluntary, explain why the promoters of a group have an incentive to offer these ‘unrelated’ services.
