Topic 8 - Government intervention and failure

Question 1

internalising an externality

Answer 1

an attempt to deal with the externality by bringing an external cost (or benefit) into the price system.

Question 2

pollution permits

Answer 2

where the government provides firms with permits which allow them to produce up to a set amount of carbon each year.

Question 3

regulation

Answer 3

a legally enforced requirement or standard made by the government.

Question 4

examples of regulation to fix market failures caused by negative externalities

Answer 4

environmental e.g. noise levels from pop concerts, and transport e.g. seat belts

Question 5

property rights

Answer 5

property right are issued which allows individuals to own a certain area of land

Question 6

subsidy

Answer 6

grant given by government to firms to encourage production of goods and services by lowering costs of production.

Question 7

list the forms of government intervention in response to negative production externalities

Answer 7

-indirect tax
-pollution permits
-regulation
-property rights

Question 8

list the forms of government intervention in response to positive consumption externalities

Answer 8

-subsidy
-regulation
-public goods and government intervention
-info failure and government intervention

Question 9

list the forms of government intervention in response to merit goods.

Answer 9

-subsdised provision
-regulation
-information provision

Question 10

list the forms of government intervention in response to demerit goods.

Answer 10

-indirect tax
-regulation
-information provision
-price controls (min/max price)

Question 11

government failure

Answer 11

the misallocation of resources arising from government intervention resulting in a net welfare loss