Section 6 - Government Intervention Flashcards
What is taxation?
Taxation is the process by which a government collects money from individuals and businesses to fund public services and government operations.
True or False: Direct taxes are levied on income and wealth.
True
Fill in the blank: The main purpose of taxation is to __________.
generate revenue for public expenditure
What are the two main types of taxes?
Direct taxes and indirect taxes.
Multiple Choice: Which of the following is an example of an indirect tax? A) Income tax B) Value Added Tax (VAT) C) Corporation tax
B) Value Added Tax (VAT)
What is a progressive tax system?
A progressive tax system is one where the tax rate increases as the taxable amount increases.
True or False: Indirect taxes are included in the price of goods and services.
True
What does the term ‘tax evasion’ refer to?
Tax evasion refers to the illegal act of not paying taxes owed to the government.
Fill in the blank: The main principle of taxation is equity, which means taxes should be __________.
fair and just
Short Answer: Name one advantage of a high tax rate.
It can provide sufficient funds for public services and infrastructure.
What is a subsidy?
A subsidy is a financial assistance provided by the government to support a specific economic activity or sector.
True or False: Subsidies can lead to market distortions.
True
Fill in the blank: Subsidies are often used to encourage __________ production.
increased
What are the two main types of subsidies?
Direct subsidies and indirect subsidies.
Multiple Choice: Which of the following is a common goal of subsidies? A) Increase prices B) Support low-income consumers C) Decrease production
B) Support low-income consumers
What is the impact of subsidies on consumers?
Subsidies can lower prices for consumers, making goods and services more affordable.
True or False: Subsidies can lead to overproduction in certain industries.
True
What is the purpose of agricultural subsidies?
To stabilize farm incomes and ensure a stable food supply.
Fill in the blank: Subsidies can be funded through __________.
tax revenue
Multiple Choice: Which sector is least likely to receive subsidies? A) Renewable energy B) Tobacco C) Education
B) Tobacco
What are price controls?
Government-imposed limits on the prices charged for goods and services.
True or False: Price ceilings can lead to shortages.
True
Fill in the blank: A __________ is a maximum price set by the government.
price ceiling
What is a price floor?
A minimum price set by the government for a particular good or service.
Multiple Choice: What is the primary goal of implementing price controls?
To protect consumers from rapid price increases.
What is an example of a price ceiling?
Rent control in housing markets.
True or False: Price floors can lead to surpluses.
True
Short Answer: Name one potential negative effect of price controls.
Decreased supply of goods.
What happens to market equilibrium when a price ceiling is set below the equilibrium price?
It creates a shortage.
Fill in the blank: Price controls can result in __________, where consumers cannot find the product they want.
shortages
What is regulation?
Regulation is the act of governing or controlling something, often through rules or laws set by a governing body.
What is deregulation?
Deregulation is the process of removing restrictions or regulations in an industry, allowing for more free market conditions.
True or False: Deregulation always leads to increased competition.
False
What is privatization?
Privatization is the transfer of ownership of a business or public service from the government to private individuals or organizations.
Fill in the blank: Regulation is often implemented to protect _______.
public interest
What are some potential benefits of deregulation?
Potential benefits include increased competition, lower prices for consumers, and innovation.
Short answer: Name one industry that has undergone significant deregulation.
The airline industry.
Multiple choice: Which of the following is a reason for privatization? A) To increase government control B) To improve efficiency C) To reduce competition
B) To improve efficiency
What is a common criticism of deregulation?
A common criticism is that it can lead to reduced consumer protections and increased risks.
True or False: Privatization can lead to the exclusion of low-income individuals from essential services.
True
Fill in the blank: The goal of regulation is often to ensure _______ and _______ in the market.
fairness, safety
What role do regulatory agencies play?
Regulatory agencies enforce laws and regulations to ensure compliance and protect public interests.
Multiple choice: Which of the following is NOT a type of regulation? A) Economic regulation B) Social regulation C) Corporate regulation
C) Corporate regulation
Short answer: What is a potential downside of privatization?
A potential downside is that it can lead to higher costs for consumers.
What is meant by ‘market failure’ in the context of regulation?
Market failure refers to situations where the free market does not allocate resources efficiently, necessitating regulatory intervention.
True or False: All forms of regulation are considered beneficial.
False
Fill in the blank: Deregulation can result in _______ for consumers in the short term.
lower prices
What is an example of economic regulation?
Price controls in utilities.
Multiple choice: Which of the following is a goal of regulation? A) To eliminate competition B) To protect consumers C) To create monopolies
B) To protect consumers
Short answer: How can deregulation impact employment in an industry?
Deregulation can lead to job losses as companies streamline operations but may also create new jobs through increased competition.
What is the primary goal of competition policy?
To promote fair competition and prevent monopolistic practices.
True or False: Competition policy is only concerned with large corporations.
False
Fill in the blank: Competition policy aims to protect the interests of ______ and consumers.
businesses
What are anti-competitive practices?
Actions that reduce or eliminate competition in a market.
Multiple Choice: Which of the following is an example of a merger that may be scrutinized under competition policy? A) Two local coffee shops B) A large tech company acquiring a smaller tech startup C) A grocery store opening a new location
B) A large tech company acquiring a smaller tech startup
What is meant by market dominance?
A situation where a company has a significant share of the market, allowing it to control prices or exclude competition.
True or False: Price fixing is considered a violation of competition policy.
True
What is the role of regulatory authorities in competition policy?
To enforce competition laws and investigate anti-competitive behavior.
Short Answer: Name one common tool used to assess market competition.
Market share analysis
Fill in the blank: The ______ Act is a key legislation in many countries that addresses anti-competitive practices.
Antitrust
What is government failure?
Government failure refers to a situation where government intervention in the economy leads to inefficient outcomes.
True or False: Government failure can occur even when the intentions of policymakers are good.
True
Fill in the blank: Government failure can result from ________ in the decision-making process.
bureaucratic inefficiencies
Which of the following is a common cause of government failure? A) Market monopolies B) Information asymmetry C) Public goods D) All of the above
D) All of the above
What is ‘regulatory capture’ in the context of government failure?
Regulatory capture occurs when regulatory agencies are dominated by the industries they are supposed to regulate.
Short answer: Name one consequence of government failure.
One consequence of government failure is the misallocation of resources.
True or False: Government failure is solely the result of poor policy decisions.
False
What role do political incentives play in government failure?
Political incentives can lead to decisions that prioritize short-term gains over long-term welfare, contributing to government failure.
Multiple choice: Which of the following can be a result of government failure? A) Increased efficiency B) Higher taxes C) Improved public services D) Enhanced competition
B) Higher taxes
Short answer: How can government failure impact economic growth?
Government failure can hinder economic growth by creating barriers to investment and reducing overall efficiency in resource allocation.
