Regulation, fines, permits and direct provision Cambridge IGCSE Economics (9–1) revision
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In plain words
Taxes and subsidies change prices. Governments have blunter tools too: they can simply make a rule, such as "no smoking indoors" or "no more than this much pollution", and punish anyone who breaks it.
They can also supply something themselves when the market will not.
5 things to know
- Regulation means rules and laws that control what firms and consumers may do: age limits, bans, limits on emissions, safety standards.
- Fines punish those who break the rules. They only work if they are large enough and if rule-breakers are likely to be caught, and checking costs money.
- Pollution permits: the government sets a total limit on pollution and issues permits for that amount. Firms that cut their pollution can sell spare permits, so there is a reward for polluting less.
- Direct provision: the government supplies a good or service itself, paid for from taxes, such as education, healthcare, street lighting and public parks.
- Quotas are limits on quantity, for example on the fish that may be caught or the timber that may be cut, to stop a natural resource being used up.
Tips and tricks
- For every policy be ready with one advantage and one disadvantage. For regulation: simple to understand, but costly to enforce.
- Permits put a cap on total pollution, which a tax cannot guarantee. That is their main advantage.
It lands in your notebook with its questions as flashcards.
Regulation, fines, permits and direct provision: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Which is an example of regulation?
It is a rule, enforced by law, about what may be sold and to whom.
What do pollution permits do?
The total is capped, and trading rewards the firms that cut the most.
Why does a government provide street lighting directly?
Nobody can be made to pay for it, so no firm could earn revenue.
A government limits the tonnes of fish that boats may catch each year. This is
A quota is a limit on quantity.
Which is a disadvantage of regulation?
Rules need inspectors and courts to make them work.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Regulation, fines, permits and direct provision
Cambridge IGCSE Economics (9–1) 0987 · 8 marks · papermunch.org
Name ______________________________ Date ______________
State two examples of government regulation used to reduce the consumption of demerit goods.[2]
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Any two of: a minimum age for buying cigarettes or alcohol, a ban on smoking in public places, a ban on advertising them.
Explain how pollution permits give firms an incentive to reduce pollution.[3]
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A firm needs a permit for the pollution it creates. If it cuts its pollution it needs fewer permits and can sell the spare ones, so polluting less earns it money.
Explain one disadvantage of using fines to stop factories polluting rivers.[3]
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Inspectors must check the factories, which is costly, and if firms are unlikely to be caught, or the fine is small compared with the cost of cleaning up, they may carry on polluting.
Answers: Regulation, fines, permits and direct provision
- 1. Any two of: a minimum age for buying cigarettes or alcohol, a ban on smoking in public places, a ban on advertising them.
- 2. A firm needs a permit for the pollution it creates. If it cuts its pollution it needs fewer permits and can sell the spare ones, so polluting less earns it money.
- 3. Inspectors must check the factories, which is costly, and if firms are unlikely to be caught, or the fine is small compared with the cost of cleaning up, they may carry on polluting.