1.4.1 Government Intervention In Markets ✅

Question 1

What are the reasons for gov intervention?

Answer 1

• correct market failure (incorrect allocation).
• support poorer
• collect gov revenue (for public and merit goods)
• support firms
• promote equity

Question 2

What are methods of gov intervention you need to know w a graph?

Answer 2

• indirect tax (specific + ad valorem)
• subsidies
• min/mX price.

Question 3

What are other gov interventions?

Answer 3

• trade pollution permits.
• state provisions of public goods.
• provisions of info.
• regulations.

Question 4

What are trade pollution permits?

Answer 4

• gov gives out certain amount of pollution permits needed to enter a market.
• larger polluters have to buy permits from lower ones in order to enter.
• it may incentivise a switch to cleaner tech.

Question 5

What is state provision of public goods?

Answer 5

Gov provides g/s which is free but paid for thru tax.

Question 6

What is provision of info? Example?

Answer 6

Gov tries to close info gaps (remove asymmetric info) eg. Nutrition labels

Question 7

What are regulations? Eg?

Answer 7

To limit harm of a negative externality (as firms can be fined or prisoned for not following). Eg environment agency.

Question 8

What is Ad valorem tax?

Answer 8

Tax on a percentage of the price.
It internalises negative costs.

Question 9

What is specific tax?

Answer 9

Fixed amount per unit.
Eg gasoline the combat environmental effect.

Question 10

What are subsidies?

Answer 10

Financial assistance to encourage production or consumption. Aim to promote provision of a good or correct positive externalities.

Question 11

Why are minimum prices used?

Answer 11

To make sure firms receive enough money.