Government intervention in markets Flashcards
What view do governments take in a free market system?
They believe that markets are best suited to allocating scarce resources
What is the main role of a government in a free market system?
The role of government is mainly to protect property rights, uphold the rule of law and maintain the currency
What can indirect taxes be used for?
They are used to raise the prices of products with negative externalities.
.Increase the opportunity cost of consumption
What would happen to the market equilibrium due to indirect taxes?
The market equilibrium would shift towards a socially optimum level
What will happen to market supply due to indirect taxes?
Market supply will decrease
What is fiscal policy used to alter?
Used to alter the level of demand for products and the pattern of demand
What are subsidies used for?
Subsidies are used to lower the price of goods with positive externalities
Give the effects of subsidies
They will boost consumption and output of products
Subsidies do cause an increase in market supply and leads to a lower equilibrium price
What are tax credits offered for?
business investment in research and development
What is a reduction in corporation tax designed to promote?
designed to promote new capital investment and extra employment
What can changes to taxation and welfare payments used for?
Used to influence the overall distribution of income and wealth
.higher direct taxes on rich households for example or an increase in welfare for the lazy. sorry the unemployed
Why could you increase welfare benefits for the poor
Makes the tax and benefit system more progressive
