Government intervention definitions

Question 1

Regulation (2)

Answer 1

• These are legal constraints
• That set standards for the consumption or for the production of goods or their externalities

Question 2

Maximum Prices (2)

Answer 2

• A price ceiling normally set by law
• To have an effect it must be set below the market clearing price

Question 3

Minimum Prices (2)

Answer 3

• A price floor normally set by law
• To have an effect it must be set above the market clearing price

Question 4

Tradable permits (2)

Answer 4

• Allowing a regulated quantity of something
• To be bought and sold

Question 5

Carbon offsetting (2)

Answer 5

• The counter balancing of carbon emissions through the purchase of carbon credit or offset from intermediary companies
• Who generate offset by various means, such as planting trees or investing in renewable energy

Question 6

Government Failure (3)

Answer 6

• This is when government interventing in a failing market to improve efficiency
• Leads to an alocation of resources that is less efficent than before
• This results in a fall in social welfare