Government intervention Flashcards
What is government intervention in the economy?
Government intervention refers to actions taken by the government to influence economic activity, correct market failures, or achieve social objectives.
What is a market failure?
Market failure occurs when the free market fails to allocate resources efficiently, leading to outcomes like inequality, externalities, or lack of public goods.
What are examples of government intervention methods?
examples include taxation, subsidies, price controls, regulations, and the provision of public goods.
Why does the government impose taxes?
Taxes are used to raise revenue, reduce negative externalities (e.g., pollution), and redistribute income.
What is the purpose of subsidies?
Subsidies are financial support provided by the government to encourage production or consumption of certain goods and services.
What are price controls, and why are they used?
Price controls, such as maximum and minimum prices, are used to protect consumers or producers and prevent unfair pricing practices.
How does the government address externalities?
The government uses taxes, subsidies, or regulations to reduce negative externalities like pollution or encourage positive externalities like education.
What are public goods, and why does the government provide them?
ublic goods, such as street lighting or defense, are non-excludable and non-rivalrous, meaning private firms lack the incentive to provide them, so the government steps in.
What is the impact of government regulation on businesses?
Regulations can ensure safety, fairness, and environmental protection but may increase costs and limit flexibility for businesses.
What are the risks of government intervention?
Risks include inefficiency, overregulation, unintended consequences, and government failure, where intervention worsens outcomes.
