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Chemistry G10 > Public Sector Intervention > Flashcards

Public Sector Intervention Flashcards

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1
Q

What are the 6 Reasons of market failures

A

Externalities
Missing Markets
Imperfect Competition
Lack of information
Immobility of factors of production
Imperfect distribution of income and wealth

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2
Q

Describe Externalities

A

Also known as spill-over effects or third-party effects
Costs and benefits that convert private costs and benefits into social costs and benefits
Costs and benefits which are not included in the market price
Negative and Positive

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3
Q

Why are markets incomplete

A

They cannot meet the demand for certain goods

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4
Q

What are merit goods

A

Goods that are highly desirable for general welfare but not highly rated by the market. They are undersupplied
E.g. Health Care, education

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5
Q

What are Demerit goods

A

Goods that are harmful to society but are highly rated by the market. They are oversupplied.
E.g. Alcohol, Cigarettes

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6
Q

What is imperfect competition

A

When competition is limited by certain producers preventing new businesses entering the market
Barriers to entry are created
Imperfect market does not allow for price negotiation
Businesses charge high price and supply low quantities

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7
Q

What is lack of information

A

Consumers, workers and entrepreneurs do not have the necessary information to make rational decisions

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8
Q

How does lack of information affect consumers, workers and entrepreneurs individually

A

Consumers - Need information in order to maximise benefits
Workers - Need to be aware of job opportunities
Entrepreneurs - Lack of information on costs, availability and productivity of FOP impacts effectiveness

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9
Q

Describe immobility of Factors of Production

A

Labour takes time to move geographically and occupationally to meet the changes in demand
Physical Capital cannot be relocated easily
Structural changes require changes in workers skills, employment and work patterns

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10
Q

Describe imperfect distribution of income and wealth

A

People who have access to capital and have more skills earn more than those who don’t
Discrimination has many negative effects on groups
Market produces goods and services only for those who can afford them

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11
Q

What are the 3 effects of market failure

A

Inefficiencies
Externalities
Monopolies and imperfect markets

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12
Q

What are the 2 types of inefficiencies

A

Productive / Technical Inefficiency
Allocative Inefficiency

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13
Q

What is productive inefficiency

A

When resources are not used appropriately to produce the maximum number of goods at the lowest cost and best quality. Some resources may be wasted

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14
Q

What is allocative inefficiency

A

When resources are not allocated in the correct proportions. Product mix does not match consumers tastes

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15
Q

What are the two types of externalities

A

Negative and Positive

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16
Q

What are negative externalities

A

Externalities that have a negative effect on the consumer such as cigarettes

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17
Q

What are the three methods governments use to reduce negative externalities

A

Carry out campaigns to persuade people from causing negative externalities
Levy taxes on goods that cause negative externalities
Pass laws and regulations to prevent activities that cause negative externalities

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18
Q

What are the 3 ways the government encourages positive externalities

A

Advertising on radio and television
Providing education, health care and other services at low prices or for free
Providing producer subsidies to lower the cost of a product and encourage its usage

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19
Q

What is an example of positive externality

A

Education

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20
Q

Describe firms in an imperfect market and what the government does to lessen the effects of these

A

Firms in an imperfect market supply a limited quantity of goods and services at a very high price
Government uses laws on competition to prevent exorbitant prices, ensure entry to the market is free, prevent harmful collusion and encourage foreign competition

21
Q

What are the 6 reasons why the government intervenes in the economy

A

Private sector does not provide enough services
Provide public services such as hospitals and schools
Government wants to protect consumers against unfair practices by monopolies
Promote fair treatment of workers and prevent exploitation
Control strategic enterprises e.g. Electricity
Guard against market prices that may be damaging to the economy’s health

22
Q

What are the 6 ways the government intervenes in the economy

A

Indirect taxes
Subsidies
Minimum Prices
Minimum Wages
Maximum Prices
Welfare

23
Q

What are indirect taxes

A

A tax paid indirectly by consumers through the purchase of goods and services

24
Q

What are the three types of indirect tax

A

VAT
Excise duties
Custom duties

25
Q

What are the 3 reasons for indirect taxes

A

Reduce the demand for a harmful product
Raise revenue for the state
Limit the impact of imported products

26
Q

Why does the government provide subsidies to producers

A

Government provides subsidies to producers in order to encourage them to increase the production of certain goods

27
Q

What are the 4 types of subsidies

A

Producer
Consumer
Export
Employment

28
Q

What are producer subsidies

A

Subsidies given to suppliers of agricultural products

29
Q

What are consumer subsidies

A

Payments made by the government so consumers can buy goods they would not normally afford

30
Q

What are export subsidies

A

How government assists firms in increasing their exports

31
Q

What are employment subsidies

A

Paid to employers to reduce labour cost and encourage more employment

32
Q

What are 3 reasons for producer subsidies

A

Promote employment and entrepreneurship
Encourage the establishment of new businesses
Improve the international competitiveness of domestic industries

33
Q

What are 3 effects of producer subsidies

A

Increase in quantity supplied and demanded
Prices will decrease and more consumers will be able to enjoy the goods
Creates uncompetitive industries and these firms will not survive in the long-run, if there are no subsidies

34
Q

What are 2 reasons for consumer subsidies

A

Reduces price of the product
Encourages the use of a particular product that the government feels is in the public interest

35
Q

What are 5 effects of consumer subsidies

A

Price of a product increases
People who receive the subsidy pay less than the original price
Those who could afford the original price pay slightly more for the product
Overall quantity of the product that is being used increases
Government monitors the prices and supply set by the markets to avoid consumer exploitation

36
Q

Why are minimum prices implemented

A

The state may feel that some prices are too low that they need to assist suppliers
This is done by setting a minimum price ABOVE the market price

37
Q

What are the 2 reasons for implementing minimum prices

A

Enable the producer to make a comfortable profit
Encourage the production of essential goods

38
Q

What are the 3 effects of a minimum price

A

Surplus of the product in the market
Surplus results in government buying extra of the product and dumping it locally or abroad
Price is higher than if it were left to the market mechanism

39
Q

What is a minimum wage

A

The lowest price that an employer can pay an employee

40
Q

What are the 6 effects of a minimum wage

A

Surplus of labour being offered
Wage rate increases
People are paid a more equitable and fair wage for their services
Fall in employment due to higher wage costs
Risk of inflation due to firms increasing selling price to adjust for the increased wages
Damages the competitiveness of some firms due to higher cost of production

41
Q

What are the 3 reasons for implementing maximum prices

A

To keep the prices of basic food low in order to ensure the poor have access
Prevents consumers being exploited and having to pay excessive prices
Keeps prices low and controls inflation

42
Q

What are the 3 effects of a maximum price

A

Price is lower than it would be if it were left to the market mechanism
Deficit / Shortage of the product
Leads to black markets

43
Q

What is welfare

A

The state of well-being of a person

44
Q

What are the 3 characteristics of welfare

A

Welfare grants are provided for people to meet their basic needs
Improving welfare reduces poverty and increases spending on basic food
Government provides merit goods and supplements the income of poor people

45
Q

What are the 3 types of social welfare grants

A

Social Grants
Children’s social support
Special Awards

46
Q

What are social grants

A

Grants that are paid to people in need E.g. Old age grants, disability grants

47
Q

What are children’s social support grants

A

Care-Dependency grant, foster child grants and child support grant

48
Q

What are Special award grants

A

Social relief of distress grant and transport relief

Chemistry G10 (10 decks)

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