Chapter 15: Mixed economic system Flashcards

1
Q

Mixed economic system

A

An economy in which both the private and public sectors play an important role

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2
Q

Maximum prices

A
  • Government may set a maximum ceiling on price in order to enable the poor to afford basic necessities
  • Some peopel now able to purchase product at a lower price
  • Shortage created
  • Rationing or lottery to allocate
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3
Q

Minimum price

A
  • Government may set a minimum price to encourage the production of a product
  • Surplus created
  • To prevent price being driven down, the surplus will have to be bought up by the government or some other offician body
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4
Q

Government measures to address market failure

A
  • Subsidies and indirect taxes changing the cost of production
  • Competition policy (prevention of mergers, removal of barriers, regulation of monopolies, prohibition of uncompetitive practives)
  • Enviornmental policies
  • Regulation (rules and laws placing restrictions on the activies of firms)
  • Nationalisation and privatisation
  • Direct provision (merit goods, public goods)
  • Unfairness (intervene on grounds of equity)
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5
Q

Risk of government failure

A
  • May overestimate the extent of private benefits offered to people by consumign merit goods and mayt find it difficult to calculate the most efficient quanttity of public goods to supply
  • Decisions may be influenced by political factors
  • Governemnt interventaiton may reduce eocnomic efficiency by reducing incentives
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