1.4 Flashcards
1
Q
Why do governments intervene in markets
A
- Reduce negative externalities
- increase positive externalities
- increase the supply of merit goods
- reduce the supply of demerit goods
- supply public goods
- reduce inequalities
2
Q
Methods of government intervention
A
- indirect taxes
- subsidies
- max/min prices
- tradable pollution permits
- state provision of public goods
- regulation
3
Q
Pollution permits
A
allow firms to produce a legal level of pollution a year. They are tradable
4
Q
State provision
A
occurs when the government intervenes in the market in order to supply a good/service:
merit goods
public goods
5
Q
Provision of information
A
Ensures all economic units can maximise decisions - have all the information required
6
Q
Government failure
A
occurs when government intervention in markets leads to a net welfare loss in comparison to the free market operating alone
7
Q
How government failure can occur
A
- Inadequate information
- Conflicting objectives
- Administrative costs
