Govt Intervention and failure (CH 18)

Question 1

Government Failure Meaning

Answer 1

When govt intervention is meant to do good to correct markets but makes the market failure worse

Question 2

Command Economy Meaning

Answer 2

Public sector providing majority of public goods

Question 3

Methods of govt intervention

Answer 3

• Regulation (rules maintained)
• Legislation (Laws)

Question 4

Examples of Government Intervention

Answer 4

• Use laws to ban consumers from consuming a good (harmful goods)
• Firms that don’t follow rules can face heavy fines, resulting in them potentially passing on costs to consumers

Question 5

Methods to correct Market Failure

Answer 5

• Internalise externalities, government incorporating external costs themselves
  e.g (Subsidising costs of gyms)
• Increasing advertising for positive healthy goods
• Increasing negative advertising for demerit goods