Chapter 10: Government intervention and government failure

Question 1

Define indirect tax

Answer 1

A tax levied on expenditure on goods and services

Question 2

Define direct tax

Answer 2

A tax charged directly to an individual based on a component of income

Question 3

Define polluter pays principle

Answer 3

An argument that a firm causing pollution should be charged the full external cost that it inflicts on society

Question 4

Define contracting out

Answer 4

A situation in which the public sector places activities in the hands of a private firm and pays for the provision

Question 5

Define competitive tendering

Answer 5

A process by which the public sector calls for private firms to bid for a contract for provision of a good or service

Question 6

Define public-private partnership

Answer 6

An arrangement by which a government service or private business venture is funded and operated through a partnership of government and the private sector

Question 7

Define private finance initiative (PFI)

Answer 7

A funding arrangement under which the private sector designs, builds, finances and operates an asset and associated services for the public sector in return for an annual payment linked to its performance in delivering the service

Question 8

Define buffer stock

Answer 8

A scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high and selling when supply is low

Question 9

Define pollution permit system

Answer 9

A system for controlling pollution based on a market for permits that allows firms to pollute up to a limit

Question 10

Define government failure

Answer 10

A misallocation of resources arising from government intervention that causes a less efficient allocation of resources and imposes a welfare loss on society