1.4.1 - 1.4.2 government intervention

Question 1

market failure

Answer 1

the inefficient allocation of resources in a market

Question 2

purpose of government intervention

Answer 2

reduce negative externalities
increase/maximise positive externalities
increase supply of merit goods
reduce supply of demerit goods
supply public goods that are undersupplied by the market

Question 3

ways government can intervene

Answer 3

taxes
subsidies - grant
advertising
maximum and minimum prices

Question 4

other methods of government intervention

Answer 4

trade pollution permits
state provision of public goods
provision of information
regulation

Question 5

indirect tax def

Answer 5

tax on good or service

Question 6

direct tax def

Answer 6

tax on individual or an organization

Question 7

specific tax

Answer 7

set amount per unit

Question 8

ad valorem tax

Answer 8

a percentage of the price of good/service

Question 9

price control

Answer 9

government sets minimum or maximum prices for a good/service

Question 10

pollution permits def

Answer 10

allows firms to produce a legal level of pollution every year

Question 11

permits are

Answer 11

tradable

Question 12

trading schemes

Answer 12

seek to reduce co2 emission globally

Question 13

state provision def

Answer 13

occurs when gov intervenes in the market in order to supply a good or service

Question 14

provision of information

Answer 14

ensures economic units can maximize decisions when consuming and producing goods or services

Question 15

government intervention can lead to

Answer 15

resources being misallocated
and net welfare loss

Question 16

governments can cause market distortion examples

Answer 16

income tax- can act as an disincentive to work hard
gov price fixing- such as max min pricing can lead to distortions of price signals
subsidies- may encourage firms to be inefficient remove incentive of efficiency

Question 17

bureaucracy def

Answer 17

the enforcement of rules of regulations by government officials

Question 18

excessive bureaucracy can cause

Answer 18

government failure

Question 19

red tape

Answer 19

government have lots of rules and regulations

Question 20

red tape can

Answer 20

interfere with the forces of supply and demand. can prevent markets working efficiently

Question 21

lots of red tapes can cause

Answer 21

time lags so gov can’t respond quickly enough to needs of producers and consumers

Question 22

what can these time lags cause in diff countries

Answer 22

competitive disadvantage to countries that are able to respond more quickly

Question 23

bureaucracy can also lead to

Answer 23

lack of investment and prevent an economy at working at full capacity

Question 24

governments often favor … when there under pressure to respond quickly

Answer 24

short term solutions

Question 25

politicians are constrained by

Answer 25

what is politically acceptable

Question 26

governments may not know how populations

Answer 26

want resources allocated and how they will react

Question 27

governments measures to correct market failure by using large amount of resources which result in

Answer 27

high costs

Question 28

causes of government failure

Answer 28

- regulatory capture- firms covered by regulatory bodies which influence decisions that ensure outcomes favor companies and not consumers - takes time for gov to work out that there is market failure and to devise and implement a policy to correct it -gov policies can be facet by issues outside of its control known as external shock

Question 29

external shock def

Answer 29

issues outside of gov control