2.11-Government intervention Flashcards
What is government intervention in the context of microeconomics?
Government intervention refers to the actions taken by a government to influence the economy, often to correct market failures.
True or False: Government intervention always leads to improved market outcomes.
False
Name one reason why governments intervene in markets.
To correct market failures.
What is a market failure?
A situation in which the allocation of goods and services is not efficient, often justifying government intervention.
Fill in the blank: A common form of government intervention is _______.
taxation
What is a subsidy?
A financial assistance provided by the government to encourage the production or consumption of a good.
How do price controls function?
Price controls are government-imposed limits on the prices that can be charged for goods and services.
True or False: Price ceilings can lead to shortages.
True
What is the purpose of a minimum wage law?
To set the lowest legal wage that can be paid to workers.
Multiple choice: Which of the following is NOT a form of government intervention? A) Subsidies B) Tariffs C) Free trade
C) Free trade
What is an externality?
A cost or benefit incurred by a third party who did not agree to it, often leading to market failure.
Fill in the blank: Government regulations are often implemented to address _______.
externalities
What is the role of antitrust laws?
To promote competition and prevent monopolies in the market.
True or False: Government intervention can sometimes lead to unintended consequences.
True
Define ‘public goods’.
Goods that are non-excludable and non-rivalrous, meaning they are available for everyone to consume without depletion.
What is the ‘free rider problem’?
A situation where individuals benefit from resources or services without paying for them, often associated with public goods.
What are tariffs?
Taxes imposed on imported goods to protect domestic industries and generate revenue.
Multiple choice: Which of the following is a potential negative effect of government intervention? A) Increased efficiency B) Market distortion C) Improved equity
B) Market distortion
What is the purpose of government regulation in industries?
To ensure safety, fairness, and compliance with standards to protect consumers and the environment.
Fill in the blank: Government intervention can help achieve _______ in the economy.
equity
True or False: All government interventions are economically efficient.
False
What is a trade-off in the context of government intervention?
The concept that gaining one benefit may require sacrificing another, such as efficiency for equity.
Define ‘monopoly’.
A market structure where a single seller controls the entire market for a good or service.
What is the purpose of price floors?
To prevent prices from falling below a certain level, often to protect producers.
