Govt Intervention

Question 1

Regulation

Answer 1

When the government, EU or trade association set laws and other rules for organisations to enforce standards across whole industries.

Failure to comply will lead to fines + arrests etc.

Question 2

Polluter Pays Principle

Answer 2

The price of pollution of a product should reflect the private costs + external costs, a.k.a. full social costs.

PPP = Private Costs + External Costs = Social Costs.

Question 3

Indirect Taxes

Answer 3

A percentage added to the price of a good by the Govt. to reduce consumption of demerit goods.

e.g. VAT

Question 4

Subsidies

Answer 4

When the Govt. gives money to firms in order to reduce their costs leading to increases production or lower prices for supply. -> This will lead to an increase in consumption of the good.

Can also subsidise alternatives.

Question 5

Govt. Intervention

Answer 5

When a Govt. intervenes in a market to help reduce/solve market failure.

Question 6

Voluntary Agreement

Answer 6

When the Govt. persuades an industry to change their behaviour and adopt common codes of practice that reduce harmful externalities.

Question 7

Education

Answer 7

Changing consumer behaviours by making them aware of the issues surrounding a good/service.

Mostly done through schools or campaigns.

Question 8

Free Provisions

Answer 8

Providing free goods/services, e.g. condoms, needle exchanges and hostels, to help reduce the negative externalities associated with certain activities.

Question 9

Advertising

Answer 9

Like education; making consumers aware of the impacts of demerit and merit goods through mass advertising.

Question 10

Govt. Failure

Answer 10

When the Govt. intervention makes the situation worse or no better and is a waste of Govt. expenditure, a.k.a. misallocation of resources.