2.11 Government intervention

Question 1

Why do governments intervene in markets?

Answer 1

Governments aim to correct market failures.

Question 2

What is an indirect tax?

Answer 2

A tax charged on buying goods or services (e.g. tax on alcohol or fuel)

Question 3

What is a direct tax?

Answer 3

A tax on people or firms (e.g. income tax)

Question 4

When would the government use indirect tax on goods?

Answer 4

in order to produce negative externalities in order to reduce their consumption/production of a good, i.e cigarettes.

Question 5

who is the cost fallen upon when implying a income tax?

Answer 5

Part Consumer and part supplier.

Question 6

Who does the cost fall upon when having a subsidy?

Answer 6

The goverment.

Question 7

what would the government want to encourage the consumption of a good?

Answer 7

A subside, i.e Solar Panels.

Question 8

What’s the effect of a subsidy?

Answer 8

To shift supply to the right.

Question 9

What’s a problem with a subsidy?

Answer 9

Could lead to waste and inefficiency in firms, particularly if the size of the subsidy is to generous.

Question 10

What is Government Intervention?

Answer 10

action taken by government that seek to change the decisions made by individuals, groups and organizations about social and economic matters.

Question 11

What is State Provision of goods?

Answer 11

Providing goods that are under provided by the free market i.e. public goods like streetlights etc

Question 12

What is Price Controls?

Answer 12

The government introducing the minimum and maximum price cap.

Question 13

Example of a minimum price cap?

Answer 13

Scotland Alcohol prices.

Question 14

Example of a minimum requirement?

Answer 14

Pollution levels.

Question 15

How can the government control market failure?

Answer 15

Legislation and regulation.

Question 16

What is Counter Production?

Answer 16

People supplying products illegally due to regulations, e.g. illegal drugs.

Question 17

What are pollution permits?

Answer 17

Government issues a certain number if licenses to emit pollution.

Question 18

What’s a advantage to pollution permits?

Answer 18

The government can fix the total level of pollution.

Question 19

What is a public-private partnership?

Answer 19

When the government collaborates with a private firm on a project.

Question 20

What’s an advantage of public-private partnership?

Answer 20

Government can benefit from the expertise and knowledge of the private sector organisations.

Question 21

What is a buffer stock?

Answer 21

Used by some governments to stabilize the prices of agricultural goods. -

Question 22

What is Government Failure?

Answer 22

Occurs when government intervene in markets in an attempt to correct market failure but actually worsen or cause misallocation of resources.

Question 23

What are some downsides to government intervention?

Answer 23

Shortages, Surpluses, information, changing government polices, bureaucracy, moral hazard, regulatory capture.

Question 24

Some specific cases of government failure?

Answer 24

Providing public goods, taxing goods with high negative externality’s, Tradeable pollution permits.

Question 25

What is a maximum price cap?

Answer 25

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.