Government Intervention Flashcards
What is government intervention?
Any action carried out by the Government that affects the market with the objective of changing the free market equilibrium/outcome, i.e., to correct market failure.
What is a tax?
A charge levied by the government to raise revenue.
What is an indirect tax?
A tax imposed on expenditure, producers (suppliers). It is a tax placed on a product and increases costs to firms.
What is an ad valorem tax?
An ad valorem tax is a percentage tax, e.g., VAT is charged at 20% of the price.
What is a specific tax?
A flat rate tax, e.g., 50p per item.
What is a maximum price?
A price set by the government which makes it illegal for firms to charge more than a certain amount for a given quantity.
What is a minimum price?
A price floor on a good or service set by the government, below which it cannot fall.
What are trade pollution permits?
A pollution permit that can be bought and sold in the market. It allows the owner to pollute up to a certain limit.
What is state provision?
A government funded good or service that is provided by the public sector or contracted out to the private sector.
What is regulation?
Government laws and rules imposed on markets to influence the behaviour of consumers and producers.
What are property rights?
An economic agent has exclusive authority to decide how to use a resource.
What is the extension of property rights?
Allowing other stakeholders, often third parties, to have a say in how a resource is used.
What is government failure?
Occurs when government intervention leads to an inefficient allocation of resources and a net loss of welfare.
What is distortion of price signals?
The actions of government which distort the operation of the price mechanism and lead to misallocation of resources.
What are unintended consequences?
The actions of government that have effects that are unanticipated and not predicted by the policymaker.
What are excessive administration costs?
Where costs that arise in the formation, monitoring and enforcing of government measures are too high and above the benefits of the measure.
What are government information gaps?
Where the government has insufficient information to make rational economic decisions.
