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Economics Term 1 > Public sector intervntion > Flashcards

Public sector intervntion Flashcards

1
Q

Allocative inefficiency

A

resources not allocated in right proportions and product mix does not match consumers tastes

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2
Q

Ad-valorem tariffs

A

taxes levied as a percentage of value of the imported goods

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3
Q

Black Market

A

an illegal market where illegal goods are sold and illegal prices are charged

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4
Q

Consumer subsidies

A

Financial incentives provided by the government to the consumer in order to reduce the price of the product

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5
Q

custom duties

A

taxes levied on imported goods

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6
Q

Demerit goods

A

goods that are harmful to society, but are oversupplied by markerts

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7
Q

direct taxes

A

taxes levied on incomes of individuals and firms

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8
Q

Excise duty/sin tax

A

taxes levied on selected products such as tobacco and alcohol

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9
Q

Indirect taxes

A

taxes levied on sale of goods and services

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10
Q

Market failure

A

When market fails to produce the quantity of goods and services that people need at prices that also reflect marginal utility and relative scarcity. Or occurs when market forces fail to allocate resources effieciently

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11
Q

Maximum price

A

highest price set by government which businesses are allowed to charge there customers. Usually set below market price to make goods affordable

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12
Q

merit goods

A

goods beneficial to society, undersupplied by market.

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13
Q

minimum price

A

lowest price set by government which businesses are allowed to charge their customers. Usually set above the market price to ensure businesses earn reasonable profit

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14
Q

minimum wage

A

wage rate set by government, below which no employer can pay their workers. Usually set above market wage rate.

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15
Q

Private benefit

A

gain a consumer gets from the use of a product or the gain a producer gets from selling a product.

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16
Q

Productive/technical ineffieciency

A

when resources are not used appropriately to produce the max number of goods at lowest cost and best quality

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17
Q

Private cost

A

actual cost paid by a consumer when a product is purchased

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18
Q

Public goods

A

goods provided by government to benefit everyone and should be available to everybody

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19
Q

externalities

A

costs and benefits to third parties which are not included in market price

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20
Q

Producer subsidies

A

cash allowances given to producers to lower the cost of production and allow more goods to be supplied at lower prices.

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21
Q

Social benefit

A

benefit gained by the society from the use of a product. Calculated by adding the private benefit and external benefit

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22
Q

Social cost

A

cost of a product which is paid by the society as a whole. It is calculated by adding the private cost and external cost

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23
Q

Reasons of market failures(6)

A 
externalities
missing markets (public goods)
imperfect competition
Lack of info
immobility of factors of production
Imperfect distribution of income and wealth
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24
Q

examples of negative externalities (2)

A

pollution

tobacco smoking\alcohol abuse

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25
Q

who are the costs of negative externalities paid by

A

society rather than producers

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26
Q

what are positive externalities

A

positive effects of products to third parties which are not paid for

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27
Q

missing markets (public goods)

A

markets are incomplete-they cannot meet the demand for certain goods

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28
Q

why are private producers reluctant to provide public goods?

A

private producers can’t withhold these goods for non-payment. Therefore gov provides these goods

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29
Q

imperfect competition

A

competition is limited by the power of certain producers to prevent new businesses from entering the market

30
Q

why are barriers (which cause imperfect competition) created? (3)

A
  1. because of advertising,
  2. a lack of capital
  3. the controlling of resources
31
Q

what do imperfect markets NOT allow

A

for price negotiations

32
Q

what about imperfect markets indicate market failure

A

charging high prices and supplying low quantity of goods

33
Q

what effect does a lack of info have on consumers, workers and entrepreneurs?

A

do not have necessary info to make rational decisions

34
Q

effect of lack of info on consumers

A

dont have enough info to maximize their benefits

35
Q

effect of lack of info on entrepreneurs

A

lack of info on costs, availability and productivity of factors of production impact their effectiveness.

36
Q

effect of lack of info on workers

A

unaware of available job opportunities

37
Q

effect of lack of info on allocation of resources

A

resources aren’t allocated efficiently, leading to market failure

38
Q

what type of capital cant be relocated quickly

A

physical capital (factory businesses/infrastructur)

39
Q

what do structural changes require

A

changes in worker’s skills, employment and work patterns.

40
Q

what is the effect of immobility of factors of production

A

inefficiency allocation of resources leading to market failure

41
Q

why do some people earn more than others?

A

they have access to more capital and are more skilled

Causes and unequal distribution of income

42
Q

what has a negative effect on the income of women, minority groups and people with disabilities

A

discrimination

43
Q

effect of imperfect distribution of resources

A

inefficient allocation of resources, leading to market failure.

44
Q

Two types of inefficiencies (name & explain)

A

productive/technical inefficiency- resources not used to produce max number of goods at the lowest cost and best quality.

Allocative inefficiency- occurs when resources are not allocated in right proportions and product mix does not match consumers tastes.

45
Q

Social cost are made up of

A

private costs plus external costs

46
Q

what would happen to the final market price if external costs were considered

A

final market price would be pushed up and fewer goods would be supplied

47
Q

three methods gov use to reduce negative externalities

A
  1. carry out campaigns
  2. levy taxes on goods which cause NE
  3. Pass laws and regulations to prevent activities causing NEs
48
Q

what would happen to the demand of a product if external benefits were considered

A

demand would increase causing prices to increase

49
Q

how does gov encourage positive externalities (3)

A
  • advertising
  • providing education, health care and other services at low cost or free
  • providing producer subsidies to lower the cost of a product and encourage its usage
50
Q

Why does the government use its law on competition to prevent exorbitant prices charged by firms?

A
  • to ensure free entry into the market

- prevent harmful collusion and encourage foreign -competition which helps keep prices of goods low.

51
Q

6 reasons why the government intervenes in the economy

A

1 priv sector doesn’t provide enough services
2 provide public services
3 gov wants to protect consumers against unfair practices (monopolies etc)
4 to prevent exploitation and promote fair treatment of workers
5 to control strategic enterprises
6 to guard against market prices that damage economic health

52
Q

3 types of import tax

A

VAT
excise duties
custom duties

53
Q

3 reasons for indirect tax

A
  1. reduce demand for harmful goods
  2. raise revenue
  3. limit impact of imported goods
54
Q

why does gov provide subsidies to producers

A

to increase production of goods (lower the price of producing goods)
therefore demand more goods and services

55
Q

Consumer subsidies allow what

A

for consumers to buy goods they would not usually afford.

56
Q

export subsidies do what

A

how gov assists firms to increase their exports

57
Q

employment subsidies do what

A

reduce labour cost and encourage employment

58
Q

reasons for producer subsidies (3)

A
  1. promote employment & entrepreneurship
  2. encourage new businesses
  3. improve international competivness of domestic industries
59
Q

effects of producer subsidies (3)

A

1 increase in quantity demanded and supplied in the market
2 prices will decrease and more consumers will be able to enjoy goods
3 create uncompetitive industries, preserving businesses

60
Q

Reasons for consumer subsidies (2)

A

1 reduces the price of the product to benefit poor

2 encourages the use of particular products

61
Q

effects of consumer subsidies (5)

A

1 price of product increases in the market
2 people receiving subsidies pay less than the equilibrium
3 those who can afford the equilibrium pay slightly more
4 overall quantity of the product increases
5 gov monitors prices and supply set by the markets to avoid consumer exploitation

62
Q

positive externalities

A

benefits to the third party that are not included in the product’s market price.

63
Q

private benefits + external benefits = ?

A

social benefits

64
Q

in which sector are minimum prices mostly used

A

agricultural

65
Q

reasons for implementing min prices (2)

A

1 enable producer to make comfortable profit

2 encourage production of essential goods

66
Q

effect of min prices on quantity supplied and demanded

A

1 surplus of product QS higher than QD

67
Q

effects of min wage (6)

A

1 surplus of labour
2 wage rate increases
3 people more fairly paid
4 fall in employment
5 risks of higher wage inflation due to firms increasing selling prices to adjust to higher wage bills
6 damages competivness of some firms due to higher cost of production

68
Q

Reasons for implementing max prices (3)

A

1 to keep prices of basic needs low enough to ensure everyone is able to access them
2 prevent consumers from being exploited
3 gov hope to keep price low and prevent inflation

69
Q

effects of max prices (3)

A

1 price in the market is lower than it would be if it was left on the market mechanism to find an equilibrium price
2 deficit/shortage of the product
3 leeds to black markets.

70
Q

welfare

A

state of well-being of a person

71
Q

why are welfare grants implemented (3)

A

1 uneven distribution of wealth
2 reduce poverty and increase spending
3 to supplement the income of the poor

72
Q

types of welfare grants (3)

A

social grants- paid to people in need (old age, disability etc)

children’s social support- (care dependency grant, foster child grant, child support grant)

special awards include- include social relief of distress grant and transport relief

Economics Term 1 (6 decks)

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