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Microeconomics > Government intervention > Flashcards

Government intervention Flashcards

1
Q

What is the kuznets curve what does it show

A

a graph that shows the relationship between environmental degradation and economic growth.

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2
Q

What is government intervention

A

When the government intervenes to correct market failure

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3
Q

What is the role of the government in free markets

A

Governments role is to PUM:
protect property rights
up hold rule of law
maintain value of currency

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4
Q

Why does the gov intervene (3)

A

Correct market failure
Improve long and short term economic performance
To achieve a more equitable distribution of wealth

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5
Q

What are two economic viewpoints on Gov intervention

A

Pro free market and interventionist

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6
Q

Explain Pro free market viewpoints

A

Gov should act as watchmen and only provide merit goods (healthcare/ education) when markets fail
should also provide a enterprise environment with minimal interference.

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7
Q

Explain interventionist viewpoints

A

The market is uncompetitive and prone to market failure

lack of info and uncertainty causes problems
It’s the Government’s job to stabilize the economy as they know better than firms.

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8
Q

How does the gov correct market failure (8)

A

Gov provision of public goods & merit goods
indirect taxes
Forcing positive externalities Legislation & regulation
subsidies
price ceilings
price floors
competition policy
trade pollution permits

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9
Q

What is a Subsidy

A
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10
Q

What is a price floor

A

A fixed price enacted by the gov, usually above the market equilibrium price, cannot fall below.

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11
Q

what is a price ceiling

A

A fixed price enacted by the gov, usually below the market equilibrium price, cannot fall below.

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12
Q

What is Ad valorem tax

A

Ad valorem tax (VAT) is Tax that is taken as a % of the price being charged

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13
Q

What is specific tax

A

Specific tax is the tax per unit bought.

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14
Q

Give an example of Indirect taxes

A

Specific and Ad valorem Tax

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15
Q

Give an example of direct taxes

A

Income tax

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16
Q

How many types of tax are there

A

2

17
Q

What are the two different types of tax

A

Direct and Indirect tax

18
Q

What is the purpose of taxes(2)

A

To raise gov revenue
To correct market failure

19
Q

Who benefits and who suffers from indirect tax. Does this depend on anything ?

A

Producers and consumers suffer
Gov benefits but this depends on consumer burden or extra consequences e.g the black market

20
Q

What are the values of the producer& consumer burdens and the government revenue when PED is elastic

A

Consumer burden=Low
Producer burden= High
Gov revenue=Low

21
Q

What are the values of the producer& consumer burdens and the government revenue when PED is inelastic

A

Consumer burden=High
Producer burden=Low
Gov revenue=High

22
Q

What are the values of the producer& consumer burdens and the government revenue when PED is perfectly inelastic

A

Consumer burden=Everything
Producer burden=0
Gov revenue=high

23
Q

What are the values of the producer& consumer burdens and the government revenue when PED is perfectly elastic

A

Consumer burden=0
Producer burden= everything (takes all the price )
Gov revenue= low

24
Q

What are the values of the producer& consumer burdens and the government revenue when PES is elastic

A

Consumer burden=High
Producer burden=Low
Gov revenue=High

25
Q

What are the values of the producer& consumer burdens and the government revenue when PES is inelastic

A

Consumer burden=Low
Producer burden= High
Gov revenue=Low

26
Q

What are the values of the producer& consumer burdens and the government revenue when PES is perfectly elastic

A

Consumer burden=Everything
Producer burden=0
Gov revenue=high

27
Q

What are the values of the producer& consumer burdens and the government revenue when PES is perfectly inelastic

A

Consumer burden=0
Producer burden= everything (takes all the price )
Gov revenue= low

28
Q

What are price floors used for

A

To protect producers from price volatility
To solve market failure

29
Q

Who benefits or suffers from price floors?

A

Consumers suffer due to cost of intervention buying & consumer surplus is eroded.
Producers Benefit Depending on intervention buying.
With IB very happy & good. If no IB not as good.
Governments will also benefit from IB but this depends on unanticipated. consequences.

Microeconomics (10 decks)

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