1.4 Government intervention Flashcards
What can the government do if a good has a negative externality?
Introduce indirect taxation to prevent market failure causing a fall in supply and increase in price
What can the government do in order to introduce positive externalities?
Introduce subsidies in order to fix information gaps which will cause the supply curve to the right and lower cost of production
What is a maximum price?
A legally imposed price for a good that suppliers cannot charge above. They are set on goods with positive externalities
What is a minimum price?
A legally impose price at which the price of the good cannot go below. They are set on goods with negative externalities
What is a buffer stock scheme?
Where both maximum and minimum prices are implemented at the same time. This is often the case with agricultural products whose prices fluctuate massively.
What does pollution permits allow?
They allow the owners of companies to pollute up to a specific amount of pollution and the government controls how many permits there are so limits the maximum amount of pollution
What is the state of provision goods?
Where the government provides public goods directly through taxation, such as street lighting, to improve social welfare
What is provision of information?
When there is asymmetric information, the government provides information to allow people to make informed decisions. They may also force companies to provide information
What is regulation?
Requirements the government imposes on private firms and individuals to achieve governments purposes
What is government failure?
When the government intervention in the market leads to net welfare loss and a misallocation of resources.
What is the distortion of price signals?
The price mechanism aims to allocate resources to the best use and where consumers want and value them most highly. By intervening, the gov distorts the mechanism and so resources may be allocated inefficiently
What are unintended consequences?
When interventions cause effect the government did not intend to happen
What are information gaps?
When gov intervention leads to lack of information
What are the types of government failure?
Informations gaps?
