1.4

Question 1

Government intervention

Answer 1

aim to correct market failure

Question 2

Indirect taxes

Answer 2

taxes on expenditure increasing production costs which increases market price

Question 3

Types of indirect taxes

Answer 3

Ad valorem - Percentage tax such as VAT
Specific tax - Set tax per unit

Question 4

Subsidies

Answer 4

payment from the government to lower cost of production for firms to increase supply and encourage consumption

Question 5

Maximum price

Answer 5

to encourage consumption there’s a maximum price (below free market) so the good isn’t too expensive to produce or consume

Question 6

Minimum price

Answer 6

to discourage consumption there’s a minimum price (above free market) so the good is expensive enough to discourage consumption and production

Question 7

Tradable pollution permits

Answer 7

limits negative externalities by allowing firms to pollute up to a certain amount

Question 8

Advantages of Tradeable pollution permits

Answer 8

Encourages green production
Government raises revenue from selling permits

Question 9

Disadvantages of Tradeable pollution permits

Answer 9

Firms will relocate where they can pollute with no restrictions
Firms pass the higher costs on the consumer
Hard for the government to monitor emissions

Question 10

State provision public goods

Answer 10

government provides public goods underprovided by the market

Question 11

Provision of information

Answer 11

government provides information ensuring there’s no information failure

Question 12

Regulation

Answer 12

government can ban the consumption of a certain G+S

Question 13

Government failure

Answer 13

when intervening markets governments can fail