big cards Flashcards
reasons for government intervention in markets
- reduce or eliminate negative externalities
- increase or maximise positive externalities
- increase supply of merit goods
- reduce supply of demerit goods
- supply public goods that would be under supplied by the market
in order to reduce inequalities in the distribution of wealth & income
- unequal distribution can lead to poverty
- tensions in society can be created
- a breakdown in society can cause further market failure
governments intervene in order to support UK industry
- full employment in a government target
- certain industries are more important than others as they employ large amounts of labour
- infrastructure is essential if businesses are to provide quality services
there are a number of ways in which governments can intervene to correct market failure:
- indirect taxation
- subsidies
- price controls
- state provisions
- regulation
regulation
- governments believe this will protect the interest of consumers so they aren’t exploited by firms
- effective regulations will lead to greater choice and lower prices
- they take place in a number of industries
- a key reason for them is to create conditions for continued investment in infrastructure in important areas of the economy
the law of unintended consequences can occur because :
- inadequate information
- conflicting objectives
- administrative costs
- unintended consequences
the gov provides info where the private sectors fails to :
- the job market
- dangerous products
- economic data to help firms plan for the future
imperfect info
a gov will try to correct the market if it believes that the market is providing the wrong quantity of good.
where a government doesn’t have perfect information decisions will be made on imperfect information this could mean that decisions don’t lead to better outcomes
asymmetric information
a situation involving asymmetric information is where the economic agents on either side of the deal have different levels of information
e.g The seller of a secondhand car knows more about it than the buyer
conflicting objectives
conflicting objectives means that those people who have been appointed to represent the public interest might exploit their position to represent their own interests
types of market failure
- negative externalities
- positive externalities
- public goods
- merit goods
- demerit goods
- information failures
- monopolies
- immobility of factor inputs
policies to reduce inequality
- higher minimum wage
- free provision of services
- investment in training
causes of government failure
- political self interest/ lobbying
- policy myopia - search for quick fixes
- regulatory capture
- information failure
- disincentive effects
- high enforcement / compliance
- conflicting policy objectives
- damaging effects of red tape
regulatory failure
- may limit innovation in fast growth market
- lack powers to be effective in protecting consumers
- capping prices might prevent new firms entering a market
- may be behind the curve with new technologies
- become bureaucratic and costly
behavioural economies
- cash incentives to stop smoking
- checklists in hospital to reduce number x-rays
- choice architecture to encourage healthy eating
- chunking to increase drug treatment complexion
