Government Intervention

Question 1

Regressive tax

Answer 1

A tax in which the proportion of income paid falls as income rises

Question 2

Subsidy

Answer 2

A sum of money given by the government to firms to help reduce their costs and encourage the production

Question 3

Guaranteed minimum price

Answer 3

The lowest price producers can expect to receive, set by the government; if the free market price is “too low”, then the government will agree to buy up the excess supply

Question 4

Minimum price

Answer 4

The lowest price that can legally be charged for a product, set by the government or by industry regulators

Question 5

Maximum price

Answer 5

The highest price that can legally be charged for a product.

Question 6

Tragedy of the commons

Answer 6

Explains how shared resources tend to be exploited by individuals who have an individual incentive to maximise usage, whilst collectively users would often be better off with less usage.

Question 7

Government failure

Answer 7

Occurs when government interventions fail to correct for market failure