Role Of Gvnt In MicroEcon Flashcards
Reasons for government intervention in markets
- To earn gvnt revenue- in order to correct market failure, redistribute income and wealth, the gvnt needs to raise revenue to fund its expenditure.
• To support firms
• To support households on low incomes
• To influence the level of consumption- regulations and taxation
• To correct market failures-
• To promote equity
Forms of gvnt revenue?
Tax revenue
The sales f goods and services
Privatisation proceeds- sale of state owned ENTERPRISES
Sovereign wealth funds
Public sector borrowing
In what ways does the gvnt influence the level of consumption
by using regulations (to limit consumption of demerit goods) and taxation (subsidiesto encourage consumption of merit goods).
In what ways does the gvnt influence the level of production
regulations and taxation
How does the gvnt support households on low incomes
gvnt funding for the provision of essential infrastructure,
pension,
education subsidies
progresive taxes
transfer payments
In what ways does the gvnt support firms
Tax concessions- offering tax allowances
Protecting domestic infant industries
By:
Imposing tariffs
Quotas
Administrative barriers
And providing subsidies
Main forms of gvnt intervention?
Price controls
Direct provision of goods
Indirect tax and subsidies
Consumer nudges
Regulations and legislations
Define price controls
are gvnt regulations establishing a maximum or minimum price to be charged for certain goods and services.
Explain price ceiling
is a types of price control that limits the maximum price in order to protect consumers of a certain product.
Define price floor
is a type of price control that sets a binding minimum price in order to encourage production and supply.
How does the gvnt correct market failure
provision of public goods
Decrease in production and consumption of demerit goods
increase in production and consumption of merit goods
Reduction in monopoly power
How does the gvnt promote equity
