1.4 Government intervention

Question 1

Cap and trade schemes

Answer 1

schemes which set a limit on a particular type of pollution, and then issue pollution permits to the total of that limit which can be bought and sold between firms which pollute.

Question 2

Government failure

Answer 2

occurs when government intervention leads to a net welfare loss compared to the free market solution.

Question 3

Public choice theory

Answer 3

– theories about how and why public spending and taxation decisions are made.

Question 4

Trade pollution permit

Answer 4

a permission issued, usually by a government to allow a fixed amount of pollution to be created; this permit can be used by the owner or sold to another firm.

Question 5

Rent-seeking

Answer 5

the use of political power by an economic agent to manipulate the distribution of resources for their own benefit at the expense of others without creating any extra wealth for society.