2.11 - Mixed economic systems + government intervention

Question 1

What are some microeconomic policy measures

Answer 1

Price control
Indirect taxes
regulations
Direct provision of goods/services
Subsidies
Tradable permits

Question 2

What is price ceiling

Answer 2

A maximum price set to sell a commodity set by the govt
Quantity demanded > quantity supplied

Question 3

What is price floor

Answer 3

Minimum price to sell a commodity set by the govt
Quantity supplied > quantity demanded

Question 4

How do governments directly provide goods and services

Answer 4

Start providing goods that aren’t provided enough by the free market

Question 5

What are some government regulations they may take to correct market failures

Answer 5

Laws, pollution control, tariffs, restrictions, etc.

Question 6

What are indirect taxes

Answer 6

taxes on expenditure to make the good/service more expensive

Question 7

What are subsidies

Answer 7

Sum of money given by the govt to producers based on certain conditions.

Question 8

Why can indirect taxes be disadvantageous to consumers

Answer 8

Would also hurt the consumer since demerit goods are usually inelastic, and the firm could share the increased cost with the consumer by increasing the price.

Question 9

What is nationalization

Answer 9

Government takes over the ownership of private sector companies or industries,

Question 10

Problems with govt interventio

Answer 10

May encourage smuggling and black markets

Regulations will increase production costs and prices

Public sector orgs may be inefficient and produce poor quality goods and services

discourage foriegn firms and MNCs from setting up in country

Question 11

What is privitisation

Answer 11

Transferring of state-owned enterprises and public sector activities to the private sector.

Question 12

What problems of a market economy can the govt help overcome in a mixed economic system

Answer 12

Directly provide public and merit goods that are not provided by free market since it is not profitable to do so.

Provide welfare benefits to people who are poor and cannot afford to buy goods and services that are produced by private firms that provide those goods at high prices.

Support unemployed people because private firms don’t find a profitable use of them. Retraining, financial help, etc

Ban the production and sale of harmful goods such as weapons and drugs

Introduce laws to protect animal welfare and the environment

Question 13

How can a govt correct public goods not being supplied

and

too few merit goods will be supplied and consumed

Answer 13

Pay for the provision of public goods and merit goods using money from taxes

Question 14

How can govt corr demerit goods will be over-supplied and consumed

Answer 14

Ban the production and sale of demerit goods

raise prices using indirect taxes so that fewer people consume it

Set higher minimum prices that create significant external costs.

Question 15

How can govt corr ‘some firms may exploit their consumers and employees’

Answer 15

Regulate behavior of large powerful firms

nationalization

Employment laws

Legal minimum wage

Question 16

How can govt corr ‘Factor immobility obstructs the ability of firms to allocate resources efficiently’

Answer 16

Provide education and retraining for workers who are occupationally immobile because they don’t have relevant skills.

Encourage firms to move into areas of high unemployment by subsidizing their costs

Question 17

How can govt corr ‘goods and services with significant external costs may be over-provided’

Answer 17

Indirect taxes can be used to raise the market prices of goods and services with significant external costs so demand contracts

Question 18

How can govt corr ‘goods and services with significant external benefits may be under-provided’

Answer 18

Use subsidies to reduce the costs of producing these types of goods so that firms are encouraged to produce and supply them.