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Y1 ECON > 1.4 government intervention and failure > Flashcards

1.4 government intervention and failure Flashcards

1
Q

what is a tax?

A

charges on individuals and organisations by governments

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2
Q

what is the difference between an indirect and a direct tax?

A
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3
Q

what are the two types of indirect tax?

A

specific tax
ad valorem tax

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4
Q

what is the difference between the two types of indirect tax?

A

specific tax -
ad valorem tax -

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5
Q

what is producer tax incidence?

A

the burden of a tax on the produer

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6
Q

what is consumer tax incidence?

A

the burden of a tax on the consumer

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7
Q

what is deadweight loss?

A

a cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium

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8
Q

what is a subsidy?

A

payments to producers by the government to reduce the costs of production

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9
Q
  1. Under what circumstance would tax burden fall mainly on the consumer?
A
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10
Q
  1. Under what circumstance would tax burden fall mainly on the producer?
A
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11
Q
  1. Explain in words why taxes result in deadweight loss
A
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12
Q

Give 2 benefits of indirect taxes over other forms of intervention to correct a market failure

A
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13
Q

Give 2 disadvantages of indirect taxes over other forms of intervention to correct a market failure

A
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14
Q

give reasons why governments may wish to subsidise a product

A

-

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15
Q

Give 2 benefits of subsidies over other forms of intervention to correct a market failure in a market of your choice

A
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16
Q

Give 2 disadvantages of subsidies over other forms of intervention to correct a market failure in a market of your choice

A
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17
Q
  1. Explain in words why subsidies result in deadweight loss
A
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18
Q
  1. Under what circumstances would a tax generate a lot of government revenue?
A
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19
Q

Under what circumstances would a tax result in a significant decrease in the quantity of the good consumed?

A
20
Q

Under what circumstances would a subsidy result in a significant fall in price for the consumer?

A
21
Q

Under what circumstances would a subsidy result in a significant increase in price for the producer?

A
22
Q

Under what circumstances would a subsidy result in a significant increase in the quantity of a good consumed?

A
23
Q

what is a minimum price?

A

price set by the government to prevent the market price from falling below a certain level; also known as a price floor

24
Q

give reasons why a government may wish to put a minimum price on a product

A
  • to support the incomes and jobs of producers and encourage investment and innovation
  • to discourage consumption of goods that are bad for social welfare
  • to prevent consumers abusing any monopsony power they have at expense of suppliers
25
Q

does an unguarunteed minimum price cause a shortage or a surplus?

A

surplus

26
Q

if an unguaranteed minimum price is imposed, does a firm’s revenue increase or decrease?

A

depends on the elasticity

27
Q

what is a guaranteed minimum price?

A

a legal price floor where the government buys up the surplus

28
Q

if a guaranteed minimum price is imposed, does a firm’s revenue increase or decrease?

A

increase

29
Q

give a benefit of guaranteed minimum prices over unguaranteed minimum prices

A

certainty for producers

30
Q

give a disadvantage of guaranteed minimum prices over unguaranteed minimum prices

A

cost for government

31
Q

what is a maximum price?

A

the govenment or an industry regulator can set a maximum price to prevent the market price from rising above a certain level; also known as price ceiling

32
Q

give reasons why a government may wish to put a maximum price on a product

A
  • to make necessities more affordable; reduce poverty/hardship
  • to encourage consumpton of merit goods
  • to prevent businesses profiteering at the expense of consumers
33
Q

what is a tradeable pollution permit?

A

where the government gives firms a permit which allows them to produce up to a set amount of carbon each year

34
Q

explain the benefits of tradeable pollution permits

A
  • makes the polluter pay and internalises the externality
  • incentives the firms to lower their emissions and for consumers to change their behaviour
  • revenue generated can be spent on other envirnmental initiatives
35
Q

explain the disadvantages of tradable pollution permits

A
  • problems determining the size of the tax
  • demand may be price inelastic so tax may have little impact on pollution
  • could cause a loss of international competetiveness
  • could be regressive
  • rise of tax evasion
  • countries may ‘free ride’
36
Q
  1. Explain 3 reasons why the government might want to provide goods
A
37
Q
  1. Explain 2 disadvantages of state provision
A
38
Q
  1. Explain a benefit of information provision
A
39
Q
  1. Explain 2 disadvantages of information provision
A
40
Q

what is (‘command and control’) regulation?

A

a set of rules, normally imposed by government, that seeks to modify or determine the behaviour of firms or organisations

41
Q
  1. What forms might regulation take?
A
42
Q

explain the benefits of regulation

A
  • can ensure consideration of externalities
  • prevents exploitation of consumers
  • keeps consumers fully informed
  • helps overcome market failure
43
Q

explain the disadvantages of regulation

A
  • laws may be expensive to moniter, incuring an opportunity cost
  • compared to tradable pollution permits, regulation is less efficient method of reducing pollution
  • government can suffer regulatory capture
  • firms may pass on costs to consumers
  • excessive regulation may reduce competition in the market
44
Q

what is meant by ‘government failure’?

A

when government intevention in the market leads to a misallocation of resources and a net welfare loss

45
Q

give the causes of government failure

A

distortion of price signals
unintended consequences
excessive administartion costs
information gaps

Y1 ECON (13 decks)

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