1.2.6 government intervention

Question 1

Government intervention

Answer 1

Where the government becomes involved in a situation in order to help deal with a problem

Question 2

The need for government intervention

Answer 2

Without government intervention, some businesses might neglect the needs of certain stakeholders

Question 3

Taxation

Answer 3

Mandatory payments to the government put in incomes, products, etc.

Question 4

Advantages of taxation

Answer 4

External costs of production and consumption are reduced so consumers can buy goods at lower prices

Question 5

Disadvantages of taxation

Answer 5

If a certain good is price inelastic (the demand will not be affected), consumers may experience lower living standards or having to spend a higher proportion of their disposable income

Question 6

Subsidies

Answer 6

Money given from the govt. to firms or individuals

Question 7

Advantages of subsidies

Answer 7

Acts as an incentive to reduce external costs so that prices can be lower for consumers

Question 8

Disadvantages of subsidies

Answer 8

Opportunity cost for the government as they could have used the only for other things such as infrastructure, healthcare, etc. and the money may be spent irresponsibly

Question 9

Fines

Answer 9

Money charged on a firm/individual for doing something prohibited

Question 10

Advantages of fines

Answer 10

The government gains more revenue and lowers the rate of crimes/penalties as some people may not be able to afford the fines

Question 11

Disadvantages of fines

Answer 11

Firms and individuals may still continue what they were doing after the fine is paid

Question 12

Regulation

Answer 12

Management of systems according to rules/trends

Question 13

Advantages of regulation

Answer 13

Reduces external costs of production

Question 14

Disadvantages of regulation

Answer 14

It is not easy to make companies obey laws

Question 15

Pollution permits

Answer 15

Government-issued documents that gives businesses the right to discharge a certain amount of polluting material into the environment

Question 16

Advantages of pollution permits

Answer 16

Acts as an incentive for firms to improve their technology to emit less pollution which helps the environment

Question 17

Disadvantages of pollution permits

Answer 17

Pollution is difficult to measure

Question 18

What can government intervention do

Answer 18

• Promote competition
• Limit monopoly power
• Protect consumer interests
• Control mergers and takeovers

Question 19

Promoting competition

Answer 19

• Prevents anti-competitive practices (attempts by firms to prevent/restrict competition)
• Encourages the growth of small firms
• Low barriers to entry
• Introduces anti-competitive legislation

Question 20

What do anti-competitive legislations do?

Answer 20

• Eliminates practices that reduce competition
• Promotes/sustains competition within markets
• Protects the interest of consumers
• Ensures freedom of trade

Question 21

Protecting consumer interests

Answer 21

• Prevents businesses from:
• Increasing prices to higher levels than they would be in a competitive market
• Price fixing
• Restricting consumer choice by market sharing
• Raising barriers to entry by spending huge amounts of money on advertising, which smaller companies cannot match

Question 22

Price fixing

Answer 22

Where a no. of firms agree to fix the price of a product to avoid price competition

Question 23

Minimum wage

Answer 23

Minimum amount per hour which most workers are legally entitled to be paid

Question 24

Reasons for minimum wage

Answer 24

• Raises the income for low paid workers
• Closes the financial gap between the rich and poor in an economy
• Motivates workers to boost productivity in an economy

Question 25

Advantages of minimum wage

Answer 25

• Raises the income of low-paid workers
• Benefits disadvantage workers (minorities)
• Reduces inequality and increase fairness
• Workers on low incomes will not have to receive welfare benefits (govt. saves money)
• As incomes rise, workers pay more tax (govt. receives more money)
• Higher wages may motivate workers to boost productivity

Question 26

Disadvantages of minimum wage

Answer 26

• Workers will receive less welfare benefits
• Workers may need to pay more tax
• May result in job losses is minimum wage increases as firms may not be able to afford hiring as many workers