1.4 government intervention - definitions

Question 1

Ad valorem tax

Answer 1

Tax which accounts for a % of price

Question 2

Specific tax

Answer 2

A tax on a fixed amount for each unit of a good or service sold

Question 3

Subsidy

Answer 3

A government grant given to a business which reduces costs and increases supply. Supply shifts to the right

Question 4

Maximum price

Answer 4

A price ceiling - when the Government sets a price that it will not allow the market price to rise above.

Question 5

Minimum price

Answer 5

A price floor - when the Government sets a price that it will not let the market price fall below

Question 6

Tradable Pollution Permits

Answer 6

These give companies a legal right to pollute a certain amount per fixed time span and can then sell their surplus pollution permits

Question 7

Gov regulation

Answer 7

Making laws, such as health and safety or environmental laws

Question 8

Gov failure

Answer 8

This is when a Government intervention (public spending, taxes or regulations) leads to a net welfare loss.