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Economics > Government Intervention > Flashcards

Government Intervention Flashcards

1
Q

Why do government use indirect taxes

A

To affect the supply of some goods/services

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2
Q

Define indirect tax

A

Can be imposed on the purchase of goods or services to cover the new extra cost incurred by firms because of the tax

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3
Q

What are the two types of indirect tax

A

Specific tax

Ad valorem tax

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4
Q

Define specific tax

A

A fixed amount is charged per unit of good

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5
Q

Define ad Valorem tax

A

Charged as a proportion of the price of a good

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6
Q

Draw a specific tax curve

A

…

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7
Q

Draw an ad valorem tax curve

A

….

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8
Q

What are the properties of a specific tax curve

A

Tax is the same fixed amount at a low price and high price

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9
Q

What are the properties of ad valorem tax

A

Non parallel shift

Biggest impact on higher price goods

Tax is smaller at low price and higher at high price

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10
Q

Why do government tax goods with negative externalities

A

To internalise the externality that the good produces

I.e. make the producer or consumer of the product cover the cost of the externality

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11
Q

What is an example of a specific tax

A

Landfill tax

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12
Q

Define consumer burden

A

..

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13
Q

Define producer burden

A

…

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14
Q

What are the advantages of indirect tax

A

Cost of the negative externalities is internalised in the price of the good

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15
Q

Disadvantages of indirect tax

A

Difficult to put monetary value on the cost of the negative externalities

Increase the costs of production

Reduce international competitiveness

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16
Q

Subsidies are usually paid to producers by the government

A

…

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17
Q

What is the aim of subsidies

A

Used to encourage the production and production of goods + services with positive externalities

Can also be used to reduce negative externalities (reduce pollution on roads) by e.g. subsidising electric cars

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18
Q

Draw a subsidies diagram with labels showing total cost of subsidy to government, consumer gain and producer gain

A

…

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19
Q

Benefit gained from subsidies Is proportionate to

A

The elasticity of the supply + demand curves

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20
Q

Advantages of subsides

A

-benefit of goods with positive externalities is internalised I.e. cost of externalities is covered by subsidy
-subsides can change preferences
E.g. merit good cheaper -> more affordable -> Inc. Demand

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21
Q

Disadvantages of subsidies

A

Difficult to put monetary value on the benefit of the positive externalities

Opportunity cost

May make producers inefficient and reliant

Subsidised goods/services may not be as good as the ones they’re aiming to replace

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22
Q

Why might a max price be set

A

To increase consumption of a merit good or to make a necessity more affordable

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23
Q

What does It mean on a diagram when the max price is set above the equilibrium curve

A

Has no impact

24
Q

What does It mean in a max price diagram if the max price is set below the equilibrium

A

Leads to excess demand

Shortage of supply

Rationing function

Excess demand cannot be cleared by market forces

25
Q

Advantages of a max price

A

Increases fairness

Prevent monopolies from exploiting consumers

26
Q

Disadvantages of max price

A

Some people will be unable to buy

Introduce rationing scheme to allocate good

Excess demand can lead to the formation of a black market

27
Q

Why are minimum prices set

A

So suppliers can get a fair price

28
Q

With minimum price, if it is set below market equilibrium

A

It has no impact

29
Q

With minimum price, if above the equilibrium it will

A

Have an impact

30
Q

Advantages of a minimum price

A

Producers have a guaranteed minimum income

Encourages investment

31
Q

Disadvantages of a minimum price

A

Resources used to produce excess supply could be used elsewhere

Destroying excess goods is a waste of resources

32
Q

What is state provision

A

Where government provide certain goods + services

33
Q

What funds state provision

A

Tax revenue

Pay for certain goods + services-> free or mostly free

34
Q

Disadvantages of state provision

A

Less incentive for firms to operate efficiently

May fail to respond to consumer demands -> lacks profit motive

Reduce self reliance

35
Q

Why is health care funded by gov

A

Society benefits from positive externalities

36
Q

What are the disadvantages of health care being funded by government

A

Excess demand , long waiting lists

Wasteful of resources

May not always respond to patient wants + needs

Reduce self reliance-> have hospital visits for minor problems

37
Q

Draw a minimum price diagran

A

….

38
Q

Define regulation

A

Rules enforced by an authority usually backed up with legislation

39
Q

What is regulation used for

A

To control the activities of producers + consumers , change the undesirable behaviour

Reduce use of demerit goods + services

Reduce power of monopolies

Provides some protection from asymmetric information

40
Q

Why can regulation be difficult to set

A

Can be expensive to monitor compliance

If punishment for breaking isn’t harsh, may not be a deterrent and change behaviour

41
Q

What can regulating bodies do

A

Set rules and impose price controls

Used to increase competition in a market

E.g. ofcom

42
Q

What will provision of information do

A

Impact the demand for the good

43
Q

What can government intervention cause

A

Misallocation of resources + net welfare loss (gov failure)

44
Q

Define government failure

A

Unintended consequence of an intervention to correct a market failure

45
Q

What can government intervention cause

A

Market distortion

46
Q

How does government bureaucracy interfere how the market works

A

Rules + regulations (red tape) to prevent marker failure -> enforcement of these is bureaucracy

47
Q

What is excessive bureaucracy

A

Government failure

48
Q

What is regulatory capture

A

Influence the decisions of the regulator to make sure outcomes favour companies and not the consumers

49
Q

Sources of government failure

A

Conflicting policy objectives

Inadequate information

Administrative costs

Regulatory capture

50
Q

Examples of government failure

A

The common agricultural policy

51
Q

Why might gov provide subsides to public transport

A

Reduce car usage + pollution level

However bus travel is seen as an inferior good so if it is cheaper it may not have an increase in demand

52
Q

Why might government introduce fishing quotas

A

Make fishing more sustainable + prevent overfishing

53
Q

Problem with fishing quotas

A

Fish stocks depleting even with quotas in place -> suggests quotas have been set too high and overfishing is still taking place

Poor monitoring of fish catches, boats could be overfishing undetected

54
Q

What is consumer burden

A

The amount of tax that is passed onto a consumer from an increase (ad valorem)

55
Q

What Is producer burden

A

The amount of tax absorbed by the firm

Amount of tax The firm still has to pay after passing on some of the burden onto consumers

Economics (38 decks)

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