1.4 Governement Government

Question 1

What are public goods ?

Answer 1

Goods that are non-rival and non-excludable, and therefore not provided in the free markets.

Question 2

What does the term labour immobility mean ?

Answer 2

A situation in which workers cannot move between jobs, for occupational/structural reasons or geographical reasons.

Question 3

What is meant by the term Monopoly ?

Answer 3

A single firm dominated a market, causing prices to be higher and output lower than in a competitive market.

Question 4

What is a positive consumption externality ?

Answer 4

Consumption of a good / service leads to positive impacts on 3rd parties, and therefore underconsumption in the free market.

Question 5

What is information asymmetry ?

Answer 5

A market in which buyers and sellers do not have the same information as each other, leading to exploitation.

Question 6

What is meant by the term Monopsony ?

Answer 6

A market in which there is a dominant buyer, causing prices to be lower than in a competitive market.

Question 7

What are information gaps ?

Answer 7

A situation in which a lack of information in a market leads to over or under consumption.

Question 8

What is a negative production externality ?

Answer 8

Production of a good / service leads to negative impacts on a 3rd party , and therefore overproduction in the market.

Question 9

What is a quasi public good ?

Answer 9

A good that is either non-rival or non excludable, but not both.

Question 10

What is meant by the term tradegy of the commons ?

Answer 10

Over use of shared resource due to self interest.

Question 11

What policies are used for tacking market failure ?

Answer 11

• indirect tax
• Subsidy
• Maximum price
• Minimum price
• direct provision
• Ban / regulation
• Information provision

Question 12

What are the possible market failure ? ( 5 )

Answer 12

• information failure
• Public goods
• Monoploy power
• negative externalities ( over consumption )
• positive externalities ( under consumption ).

Question 13

What are the solutions to public goods market failure ?

Answer 13

• government provison
• encouraging charities to provide it
• contracting out

Question 14

What are the policies used to correct positive externalities market failure ?

Answer 14

• subsides / reduce tax
• Direct provision ie vaccinations
• providing more information
• Maximum price : setting a maximum price below equilibrium to encourage consumption.

Question 15

What are the policies used to correct information failure ?

Answer 15

• provide information
• Tax and subsidies
• regulation

Question 16

What are the polices used to correct negative externalities ?

Answer 16

Indirect tax
Minimum price
Ban / regulate to reduce use of product or service

Question 17

What are the policies used to correct monopoly power ?

Answer 17

Indirect tax
Profit cap / price limits
Maximum price
Regulation.

Question 18

What are the three main methods of governemt intervention to correct market failure ?

Answer 18

Indirect taxation ( AD valorem / specific )
Subsides
Maximum and minimum prices.

Question 19

What are other ( not the main three ) methods of government intervention ?

Answer 19

• trade pollution permits
• state provison of goods
• provison of information
• regulation.