1.4 Government Intervention

Question 1

Government intervention

Answer 1

Any action carried out be the government that affects the market with the objective of changing the free market equilibrium/outcome.

Question 2

Regulation

Answer 2

A law or piece of legislation designed to increase consumption or production. A non market based form of intervention designed to change behaviour

Question 3

Minimum price

Answer 3

A price floor below which price cannot fall. Can be used for demerit goods (a legal minimum price to contract demand and reduce associated external costs),
agriculture (guarantee minimum price for farmers to ensure their income remains stable),
and labour markets (lowest paid labour market receives minimum wage to reduce inequality and absolute poverty)

Question 4

Maximum price

Answer 4

A price ceiling above which price cannot rise aka price capping. Used to cap wages, rents or prices to protect consumer

Question 5

Tradable pollution permits

Answer 5

A permit which allows the owner to emit up to a specific amount of pollution

Question 6

Adv of tax

Answer 6

Social welfare is maximized
Raises gov revenue

Question 7

Disadv of tax

Answer 7

Difficult to target tax
black market
politically unpopular
regressive

Question 8

Adv of subsidies

Answer 8

high opportunity cost