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AS Microeconomics > 1.4 Government Intervention > Flashcards

1.4 Government Intervention Flashcards

1
Q

What is indirect taxation?

A

A government intervention to prevent market failure by imposing taxes on goods with negative externalities.

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2
Q

How does indirect taxation affect the supply curve?

A

It shifts the supply curve/MPC curve from S1 to S2, increasing costs to individuals.

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3
Q

What is the social optimum position in terms of externalities?

A

The point where MSB=MSC.

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4
Q

What are the advantages of indirect taxation?

A
  • Internalises the externality
  • Raises government revenue
  • Potentially improves elasticity of goods in the long run
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5
Q

What are the disadvantages of indirect taxation?

A
  • Difficulty in estimating the size of the externality
  • Potential conflict between revenue generation and solving the externality
  • Risk of creating a black market
  • Ineffectiveness if demand is inelastic
  • Political unpopularity
  • Regressive nature
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6
Q

What are some examples of indirect taxes in the UK?

A
  • Landfill taxes
  • Fuel duties
  • Alcohol duties
  • Tobacco duties
  • Air passenger duties
  • Sugar taxes
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7
Q

What is the purpose of subsidies?

A

To solve positive externalities and information gaps, lowering production costs.

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8
Q

How do subsidies affect the supply curve?

A

They shift the supply curve to the right.

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9
Q

What are the advantages of subsidies?

A
  • Maximises social welfare
  • Encourages small businesses
  • Promotes equality
  • Supports exports
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10
Q

What are the disadvantages of subsidies?

A
  • High opportunity cost
  • Difficulty in targeting the exact size of the externality
  • Risk of producer inefficiency
  • Hard to remove once introduced
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11
Q

What is a maximum price?

A

A legally imposed price that suppliers cannot exceed, set below the current price equilibrium.

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12
Q

What is a minimum price?

A

A legally imposed price that cannot fall below a certain level, set above the current price equilibrium.

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13
Q

What are the advantages of maximum and minimum prices?

A
  • Consideration of externalities
  • Ensures affordability and fair pricing
  • Reduces poverty and increases equity
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14
Q

What are the disadvantages of maximum and minimum prices?

A
  • Distortion of price signals
  • Difficulty in setting appropriate prices
  • Risk of black markets
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15
Q

What are tradable pollution permits?

A

Permits that allow the owner to pollute up to a specific limit, controlled by the government.

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16
Q

What are the advantages of tradable pollution permits?

A
  • Guaranteed reduction in pollution
  • Government revenue from permits
  • Encourages green technology investment
  • Flexibility for firms in pollution management
17
Q

What are the disadvantages of tradable pollution permits?

A
  • Expensive monitoring costs
  • Increased costs for businesses
  • Difficulty in determining the number of permits
18
Q

What is government provision of public goods?

A

Direct provision of goods that are non-excludable and non-rivalrous to correct market failure.

19
Q

What are the advantages of government provision of public goods?

A
  • Corrects market failure
  • Promotes equality
  • Benefits from essential goods
  • Can ensure efficiency through competitive tenders
20
Q

What are the disadvantages of government provision of public goods?

A
  • High opportunity cost
  • Risk of producing wrong combinations of goods
  • Potential inefficiency in production
  • Risk of corruption
21
Q

What is the purpose of providing information in markets?

A

To address asymmetric information and help consumers make informed decisions.

22
Q

What are the advantages of information provision?

A
  • Helps consumers act rationally
  • Can improve effectiveness of other policies
23
Q

What are the disadvantages of information provision?

A
  • High costs for the government
  • Limited information availability
  • Consumers may ignore the information
24
Q

What is regulation in the context of market intervention?

A

Imposition of laws and caps to ensure consideration of externalities and consumer protection.

25
Q

What are the advantages of regulation?

A
  • Ensures consideration of externalities
  • Prevents consumer exploitation
  • Maximises social welfare
26
Q

What are the disadvantages of regulation?

A
  • High monitoring costs
  • Inefficiency compared to tradable permits
  • Risk of regulatory capture
  • Increased prices for consumers
27
Q

What is government failure?

A

When government intervention leads to net welfare loss and misallocation of resources.

28
Q

What causes distortion of price signals?

A

Government intervention that alters market prices, supporting inefficient companies.

29
Q

What are unintended consequences of government intervention?

A

Effects that occur which were not anticipated by the government, leading to negative outcomes.

30
Q

What are excessive administration costs?

A

High costs associated with managing government programs that reduce net benefits.

31
Q

What are information gaps in government decision-making?

A

Limited data that makes it difficult for the government to make informed choices.

32
Q

What is the impact of excessive administration on the Apprenticeship Levy?

A

Little money is spent by firms.

33
Q

Why must government decisions be based on data?

A

To make informed choices.

34
Q

What is a significant limitation of the data available to the government?

A

Information is always going to be limited.

35
Q

What common forecasting issue does the government face regarding investments?

A

Cost and benefit forecasts are often wrong.

36
Q

What is a consequence of the government investing in systems where costs exceed benefits?

A

Welfare loss.

37
Q

True or False: It is usually possible for the government to obtain every piece of information they need.

A

False.

38
Q

Fill in the blank: The government invests in systems where the costs are _______ than the benefits.

A

higher

AS Microeconomics (6 decks)

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