government intervention

Question 1

ad valorem tax

Answer 1

tax that increases the price by a certain percentage e.g. VAT

Question 2

specific tax

Answer 2

tax on a fixed amount for each unit of a good or service sold

Question 3

subsidy

Answer 3

government grant given to a firm to encourage them to produce more and/or lower the price of its goods

Question 4

maximum price

Answer 4

price ceiling - government sets a price that does not allow the market price to rise above

Question 5

minimum price

Answer 5

price floor - government sets a price that does not allow the market price to fall below

Question 6

tradable pollution permits

Answer 6

gives companies legal rights to pollute a certain amount per fixed time span - can sell surplus pollution permits

Question 7

government regulation

Answer 7

making laws e.g. health and safety

Question 8

government failure

Answer 8

government intervention leads to a net welfare loss

Question 9

tax incidence

Answer 9

idea of who actually pays the tax, consumer or producer