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Economics Unit 3 > Government Intervention In The Market > Flashcards

Government Intervention In The Market Flashcards

1
Q

What are the causes of market failure? (7)

A 
Public goods
Merit goods
Demerit goods
Income inequality
Imperfect knowledge
Monopolies
Immobility of factors of production
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2
Q

What are the characteristics of a public good?

A

Non-rivalry and Non-excludable

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3
Q

What is a merit good?

A

Under consumed and over priced in a free market

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4
Q

What is a demerit good?

A

Over consumer and under priced in a free market

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5
Q

What is income inequality?

A

An unfair distribution of income among a population

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6
Q

What is imperfect knowledge?

A

When consumers do not know the full benefits/costs of the product they are consuming

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7
Q

What is a monopoly?

A

A firm that has 25% or more market share

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8
Q

What is the immobility of factors of production?

A

There is a loss of productive potential

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9
Q

What are the solutions to market failure? (6)

A 
Regulation 
Taxation
Information provision
Subsidies
Permits
Min/max price
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10
Q

What is regulation?

A

A firm will be fined for breaking the rules

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11
Q

Why are regulations effective?

A

The firm has to take into account external costs

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12
Q

What does taxation do?

A

Internalises the externality

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13
Q

Why is taxation effective?

A

Polluter pays the true cost of their decision

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14
Q

What is information provision

A

Makes consumers aware of the full benefit/cost

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15
Q

Why is information provision effective?

A

Takes the information into account when making decisions

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16
Q

What are subsidies?

A

A sum of money granted by the government in order to encourage supply by lowering the cost of production

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17
Q

Why are subsidies effective?

A

A lower cost of production can be passed on to the consumer, so the consumer pays lower prices

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18
Q

What are permits?

A

Firms are only allowed to pollute a certain amount

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19
Q

Why are permits effective?

A

Incentive to reduce pollution

20
Q

What is government failure?

A

When government intervention leads to a misallocation of resources

21
Q

What are the sources of government failure? (4)

A

Inadequate information
Conflicting objective
Administration costs
Regulatory capture

22
Q

What are the associations involved with competition policy? (CC, DTI, OFT)

A

Competition commision
Department of trade and industry
Office of fair trading

23
Q

What 2 policies may be used by the competition policy?

A

Monopoly policy and Merger policy

24
Q

What is monopoly policy?

A

Break up the monopoly by price control and taxing profits

25
Q

What are the 2 methods of price control?

A

Marginal cost pricing (MC=AR)

Average cost pricing (ATC=AR)

26
Q

What is privatisation?

A

Involves the transfer of publicly owned assets to the private sector

27
Q

What are the advantages of privatisation? (3)

A

Revenue raising
Promotes competition
Promotes efficiency

28
Q

What are the disadvantages of privatisation? (3)

A

Monopoly abuse
Focus on dividends
Loses out on potential profit

29
Q

What is nationalisation?

A

When the government take control of an industry previously owned by the private sector

30
Q

What are the advantages of nationalisation? (3)

A

Lower cost of production
Economies of scale
Better control

31
Q

What are the disadvantages of nationalisation? (2)

A

Lack of competition

Lower performance

32
Q

What is regulation?

A

Used to limit and deter monopoly exploitation of consumers

33
Q

What is deregulation?

A

Removal of any previously imposed regulation that have restricted competition and freedom of market activity

34
Q

What is a public-private partnership? (PPP)

A

Is a public/private service that is funded through a partnership of public and private sector firms

35
Q

What is a private finance initiative? (PFI)

A

The government becomes an enabler rather than a provider

36
Q

What is equality?

A

How equal something is

37
Q

What is equity?

A

How fair something is

38
Q

What is horizontal equity?

A

Same treatment to everyone

39
Q

What is vertical equity?

A

Unequal treatment of unequals

40
Q

What is relative poverty?

A

When the income is less than the average by a certain amount

41
Q

What is absolute poverty?

A

When the income is below a certain level necessary to maintain a minimum standard of living

42
Q

What is the poverty trap?

A

When low income households have disincentives to work because of the tax/benefit system

43
Q

What are the causes of poverty? (3)

A

Income inequality
Inheritance
Falling value of state benefits

44
Q

What are the effects of poverty? (3)

A

Poor education
Poor health
Low living standards

45
Q

What are some of the policies the government may use to try and reduce poverty? (3)

A

Reduce unemployment
Progressive taxes
Increase the national minimum wage

46
Q

What is cost benefit analysis?

A

A method of decision making that takes into account of external as well as private costs and benefits

Economics Unit 3 (15 decks)

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