10 - government intervention in the market

Question 1

market failure

Answer 1

where the free market fails to achieve an efficient allocation of recourses

Question 2

productive inefficiency

Answer 2

when firms are not producing at minimum possible average total cost

Question 3

allocative inefficiency

Answer 3

when resources are not sure to produce the goods and services wanted by consumers

Question 4

fiscal policy

Answer 4

the use of government spending and taxation to meet economic objectives

Question 5

government failure

Answer 5

when government intervention to correct market failure does not improve the allocation of resources or leads to a worsening of the situation

Question 6

negative externalities

Answer 6

negative spillover effects to third parties not involved with the consumption or production of the good. Social costs exceed private costs

Question 7

‘tragedy of the commons’

Answer 7

the over-exploitation of natural resources that are not owned by single individuals or organisations

Question 8

pollution permit

Answer 8

a right to emit a given volume of waste or pollution into the enviroment

Question 9

kyoto protocol

Answer 9

an agreement made at a global summit meeting in Kyoto, Japan, to cut world carbon emissions

Question 10

cost-benefit analysis (CBA)

Answer 10

an investment appraisal technique that takes into account all the private and external costs and benefits of an economical decision

Question 11

shadow price

Answer 11

a price calculated to more accurately reflect the costs and benefits to society of a good, particularly where no market price has previously been calculated