1.4

Question 1

What is a Merit Good? Examples

Answer 1

A good that is under-consumed in an economy e.g. healthcare and education

Question 2

What is a De-Merit Good? Examples

Answer 2

A good that is over-consumed in an economy. Its considered unhealthy and socially undesirable e.g. Smoking, Fatty foods, gambling or alcoholic beverages

Question 3

What are the two different types of taxes?

Answer 3

Ad Valorem Tax and Specific Tax

Question 4

What is Ad Valorem Tax?

Answer 4

% Tax (20% atm)

Question 5

What is Specific Tax?

Answer 5

Valued added on (e.g. £2)

Question 6

What is different about the Ad Valorem Tax on a graph?

Answer 6

The line is skewed whereas on a Specific Tax graph it isn’t

Question 7

Do Taxes shift Supply or Demand and do they shift it to the left or the right?

Answer 7

Supply and they shift it to the left

Question 8

What is a Maximum Price Schemes?

Answer 8

Sets a price ceiling below equilibrium to allow low-income households to afford that good or service

Question 9

Why are Maximum Price Schemes used?

Answer 9

When goods and services are overpriced it can often be done to Supply and Demand. Market Equilibrium can be a higher price than people are willing to pay.

Question 10

What is a Minimum Price Scheme?

Answer 10

Sets a price floor above equilibrium to reduce the consumption of a Demerit Good or Service

Question 11

What do Minimum Price Schemes do to Demerit Goods?

Answer 11

Reduce the consumption of demerit goods and reduce exploitation of suppliers. It creates excess supply and so is bad.

Question 12

What is the goal with green technology for businesses?

Answer 12

The goal is to get businesses to switch to green technology but the problem with this is it is very expensive and so businesses prefer not to unless they have no choice.

Question 13

What are Tradeable Pollution Permits?

Answer 13

When a certain amount of permits is given to businesses on how much pollution they can have. If a business has too much pollution they can buy spare pollution permits from other businesses that don’t need the permit.

Question 14

What are the advantages of TPP’s?

Answer 14

-Encourages firms to reduce their emissions
-Gives firms increased incentives to reduce emissions to be low to earn money from selling permits
-Can have a quick impact in highly polluting markets

Question 15

What are the disadvantages of TPP’s?

Answer 15

-Allows inefficient firms to remain inefficient
-Difficult and costly to monitor the inefficient firms
-Firms may choose to relocate rather than invest in green technology if they don’t have enough TPP’s
-Firms may choose to remain inefficient if the fine is less costly than the investment

Question 16

What is Government Failure?

Answer 16

When Government Intervention ends up creating further market failure

Question 17

What is the first job of Provision of information?

Answer 17

Regulate buyers/ sellers to provide full information about a good or a service

Question 18

What is the second job of Provision of information?

Answer 18

Provide information about the costs or benefits if a good or a service

Question 19

What is regulation?

Answer 19

Clear rules for firms in a particular market to follow

Question 20

What are the three main types of regulation? Examples?

Answer 20

-Banning activities e.g. disposable vapes
-Limiting a given activity e.g. fishing cap
-Requiring a specific activity e.g. accurate info presented so red, amber, green on kitkat- Shows what customer truly buying

Question 21

What is a quota?

Answer 21

Sets a max legal output in a market forcing market price up and reducing over-consumption and demerit goods

Question 22

What does a quota look like on a graph?

Answer 22

Normal supply and demand graph with supply 2 going straight up before the equilibrium. This shows the cap

Question 23

What does improved information do to the demand of a product?

Answer 23

Forces firms to provide more information leading to lower demand reducing over-consumption and demerit goods