taxation is that it offers incentives to minimize the negative externalities

Taxation is that it offers incentives to minimize the

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taxation is that it offers incentives to minimize the negative externalities – for example, palm oil products have low carbon levels due to high taxes (Mankiw 2015). Additionally, taxation is socially efficient and is the ideal solution when margin social benefit and cost are equal. In addition to taxes, subsidies are also beneficial given that they enable great social efficiency. Notably, consumers often pay socially efficient prices that include external benefits. According to Gilead and Green (2017), subsidizing palm oil substitutes will encourage consumers to spend less thereby reducing associated negative externalities. With time, subsidies can aid in changing consumer preferences while also ensuring that companies provide goods with positive externalities. The problem with subsidies, however, is that it may suffer from government failure. It is difficult to assess the scope of positive externalities and with inadequate information the government cannot subsidize accurately. What is more, there is the possibility that subsidies might compel companies to be inefficient and solely depend on them instead of improving efficiency ( Cowen and Tabarrok 2015). Additionally, the effects are dependent on elasticity of demand (See Figure 5).
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Governments Intervention 9 Figure 5: Retrieved from (Gilead and Green 2017) Drawing from the figure above, in situations whereby the demand for palm oil is price elastic, government subsidies result in large increases in demand. However, if market demand is price inelastic, the provision of subsidies is largely inefficient in augmenting demand.
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Governments Intervention 10 Reference List Adhikari, S.R., 2016. Methods of Measuring Externalities. In Economics of Urban Externalities (pp. 5-13). Springer, Singapore. Bradley, J., Postel-Vinay, F. and Turon, H., 2017. Public sector wage policy and labor market equilibrium: a structural model. Journal of the European Economic Association , 15 (6), pp.1214-1257. Cowen, T. and Tabarrok, A., 2015. Modern Principles of Microeconomics . United Kingdom: Macmillan International Higher Education. FAO. 2018. “FAO data - dimension-member - Oil, palm fruit" . [Online]. Available at - 2673fb88549a Gilead, I. and Green, M.D., 2017. Positive Externalities and the Economics of Proximate Cause. Wash. & Lee L. Rev. , 74 , p.1517. Mankiw, N. G., 2015. Principles of Microeconomics . Stamford, Connecticut: Cengage Learning. Spinks, R. J., 2014. "Why does palm oil still dominate the supermarket shelves?" [Online]. The Guardian . Available at - business/2014/dec/17/palm-oil-sustainability-developing-countries
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