1.4 Government intervention

Question 1

What is a minimum price level?

Answer 1

A price set by the government above the equilibrium on negative externalities in order to lower the consumption or production.

Question 2

What are some problems with the minimum price level?

Answer 2

Tax payers will end up paying for the storage.
There will be excess supply.
Black market.
More inequality
Market failure due to mis-allocation of resources.

Question 3

What is the maximum price level?

Answer 3

A price level that the government put below the equilibrium on negative externalities.

Question 4

What are some problems with the maximum price?

Answer 4

Shortage of supply.
Producers may exit the market.
Taxes pay when the government use subsidys.

Question 5

What is the aim of pollution permits?

Answer 5

To reduce the amount of pollution made by firms in the production of goods. This reduces the negative externality of pollution.

Question 6

How do pollution permits work?

Answer 6

The government give a set amount of permits to firms which they can trade to put a limit on the amount of pollution.

Question 7

How do command and control methods reduce pollution?

Answer 7

The government set limits on how much each company can pollute with the punishments of a fine.

Question 8

How does indirect taxation can reduce carbon emissions?

Answer 8

It is the same as MEC which will shift us from the free market to thew social optimum which means less pollution.

Question 9

What are advantages of pollution permits?

Answer 9

Cost of running them is low, It can produce revenue for the government, It can help advancement in technology and it can lower the costs of production.

Question 10

What are advantages and disadvantages of using taxation to reduce pollution?

Answer 10

It is easy to avoid the tax, Taxes will create greater revenue for the government, taxes are easy to adjust but have time lags.

Question 11

What is a public good?

Answer 11

A good that is non-excludable and non-rivalrous.

Question 12

What does non-rival mean?

Answer 12

One persons consumption doesn’t limit another persons consumption.

Question 13

What does non-excludable?

Answer 13

Everyone is able to get it.

Question 14

Why does the government have to provide public goods?

Answer 14

Because it is non profitable so the private sector wont supply it.

Question 15

What are advantages and disadvantages of the governments direct provision of public goods?

Answer 15

There is an opportunity cost and the free rider problem but it means that there is also no longer a gap in the market.

Question 16

What is meant by regulation?

Answer 16

A part of the command economy with rules.

Question 17

What are advantages and disadvantages of government regulation?

Answer 17

It is easy to enforce, cheap to enforce, regulations can end up too tight and people may not listen.

Question 18

What is government failure?

Answer 18

When government intervention results in a net welfare loss.

Question 19

How can a distortion of price signals lead to government failure?

Answer 19

When the government put min and max prices on things to manipulate the prices but it can lead to a mis-allocation of resources.

Question 20

How can unintended consequences lead to government failure?

Answer 20

A increase in tax imposed could decrease the tax revenue.

Question 21

How do excessive administration costs lead to government failure?

Answer 21

Doing this means tested benefits would be very large.

Question 22

How can information gaps lead to government failure?

Answer 22

As there may be underconsumption of a good that has a positive externality.