2.11 Government intervention Flashcards
Why do governments intervene in markets?
Governments aim to correct market failures.
What is an indirect tax?
A tax charged on buying goods or services (e.g. tax on alcohol or fuel)
What is a direct tax?
A tax on people or firms (e.g. income tax)
When would the government use indirect tax on goods?
in order to produce negative externalities in order to reduce their consumption/production of a good, i.e cigarettes.
who is the cost fallen upon when implying a income tax?
Part Consumer and part supplier.
Who does the cost fall upon when having a subsidy?
The goverment.
what would the government want to encourage the consumption of a good?
A subside, i.e Solar Panels.
What’s the effect of a subsidy?
To shift supply to the right.
What’s a problem with a subsidy?
Could lead to waste and inefficiency in firms, particularly if the size of the subsidy is to generous.
What is Government Intervention?
action taken by government that seek to change the decisions made by individuals, groups and organizations about social and economic matters.
What is State Provision of goods?
Providing goods that are under provided by the free market i.e. public goods like streetlights etc
What is Price Controls?
The government introducing the minimum and maximum price cap.
Example of a minimum price cap?
Scotland Alcohol prices.
Example of a minimum requirement?
Pollution levels.
How can the government control market failure?
Legislation and regulation.
What is Counter Production?
People supplying products illegally due to regulations, e.g. illegal drugs.
What are pollution permits?
Government issues a certain number if licenses to emit pollution.
What’s a advantage to pollution permits?
The government can fix the total level of pollution.
What is a public-private partnership?
When the government collaborates with a private firm on a project.
What’s an advantage of public-private partnership?
Government can benefit from the expertise and knowledge of the private sector organisations.
What is a buffer stock?
Used by some governments to stabilize the prices of agricultural goods. -
What is Government Failure?
Occurs when government intervene in markets in an attempt to correct market failure but actually worsen or cause misallocation of resources.
What are some downsides to government intervention?
Shortages, Surpluses, information, changing government polices, bureaucracy, moral hazard, regulatory capture.
Some specific cases of government failure?
Providing public goods, taxing goods with high negative externality’s, Tradeable pollution permits.
What is a maximum price cap?
WW2 RENT HOUSES, Led to excess demand as more people were willing to rent houses but fewer landlords were willing to supply at this level.
