Government Interventions Flashcards
What is an indirect tax?
a tax taken through purchases rather than directly from income
What is the indirect tax diagram?
What is the evaluation for an indirect tax?
- depends on PED of taxed good
- could be argued as a regressive tax
What is a subsidy?
a subsidy is money the government awards to companies to reduce the cost of the good for consumers
What is the subsidy diagram?
What is the evaluation for a subsidy
- depends on PED of other goods
- costs government money
- people may have other reasons than price - behavioural economics
What is a maximum/minimum price?
a government set price that a firm must adhere to
What is the diagram for max/min price?
What is the evaluation for max/min price?
- could damage firm’s profit - less options
- could lead to poorer quality
- min price may be too high for people - arguably regressive
What is a windfall tax?
a one-off tax when an industry or firm has above-average supernormal profits
What is the evaluation for a windfall tax?
- may discourage innovation
- could be viewed as unfair to the firm - taxed for being successful
What is a tax break?
a lowering of the tax burden on taxpayers
What is the evaluation of tax breaks?
- less money brought in for public services
- firms may choose to retain money as profit
What is breaking up monopolies?
when the government splits a company into smaller firms to encourage competition
What is the evaluation of breaking up monopolies?
- job losses in the firm
What are regulators?
government groups that impose rules in a particular market to intervene
What is the evaluation of regulators?
- may discourage competition
- firms may suffer
What is Nationalisation?
when the government takes control of a privately owned business or firm
What is the evaluation of nationalisation?
- may make firms more inefficient
- lack of competition may hinder productivity
Diagram for Taxes on Pollution
Pollution Permits diagram
What is the Tragedy of the Commons?
the depletion of shared resources when individuals act in their own self-interest - individuals will overuse a finite resource for their own benefit
What is Competition Policy?
When the government creates policy to encourage competition - not allowing mergers and anti-competitive practices
Examples of Competition Policy.
- deregulation - lowers barriers to entry
- CMA investigation - interim measures
- Fines and penalties
