1.4.1 Government intervention in markets Flashcards
Government intervention
when the state gets involved in markets and asked to correct
•one or more market failures
•improve economic efficiency
•social welfare
•change the distribution of income and wealth
Government information
campaigns and sources of information used in order to correct a market failure and/or influence consumer behaviour.
E.G. “don’t drink and drive” campaigns
Maximum price/price ceiling
A legally imposed price in a market that suppliers cannot exceed – in an attempt to prevent the market price from rising above a certain level. To be effective a maximum price has to be set below the free market price.
Minimum price/price floor
A legally imposed price floor below which the normal market price cannot fall. To be effective, the minimum price has to be set above the normal equilibrium price.
could also be used in the labour market – E.G. minimum wage, sellers cannot legally undercut the price floor
Polluter pays principle
The practice that those who produce pollution should bear the costs of managing it to prevent damage to human health or the environment.
First parties are forced to internalise external costs through indirect taxes E.G. plastic bags, environmental tax
Regulated prices
Regulators can set price controls to force monopolists to charge a price below profit maximising price to avoid a deadweight loss of consumer welfare or to avoid a cartel (if it were multiple leading companies)
Cartel
an agreement or relationship formed between two or more corporations trying to increase their profits
Regulation
Government rules and laws that can control the behaviour of producers or consumers in a market
State provision
Government provided goods or services – funded through tax revenue to provide goods which have positive externalities or are public goods.
E.G. the NHS, police force
