Unit 1 - Chapter 13

Question 1

Regulation

Answer 1

Involves the imposition of rules, controls and constraints, which restrict freedom of economic action in the market place.

Question 2

Taxation

Answer 2

A tax is a compulsory levy imposed by the government or some other authority to pay for its activities. Taxes can be used to achieve other objectives, such as reduced consumption of demerit goods.

Question 3

Emissions trading

Answer 3

Emissions trading systems allow policy makers to set a pollution target, and then issue tradable permits corresponding to that amount. Companies that wish to pollute must hold permits equals to their emissions.

Question 4

A subsidy

Answer 4

Is a payment made by government, usually to producers, for each unit of the subsidised good that they produce. Consumers can also be subsidised E.G. bus passes which offer free or reduced travel.

Question 5

Government approaches to monopolies

Answer 5

1) ‘Cost-benefit’
2) Compulsory breaking up
3) Price controls
4) taxing monopoly profits
5) Rate of return regulation
6) Changing monopoly ownership

Question 6

Compulsory breaking up of monopolies

Answer 6

Free market economists believe that economic efficiency and consumer sovereignty can only be achieved when the economy is fully competitive.

Question 7

Price controls to prevent monopoly abuse

Answer 7

Regulatory agencies often use these to prevent unfair prices being set.

Question 8

Taxing monopoly profits

Answer 8

An incentive for monopolies to reduce their prices and profits.

Question 9

Rate if return regulation

Answer 9

Imposition of maximum rates of return on the capital that energy companies can employ.

Question 10

Changing monopoly ownership

Answer 10

1) Nationalisation

2) Privatisation

Question 11

Nationalisation

Answer 11

The state taking over firms or industires previously in the private sector.

Question 12

Privatisation

Answer 12

The state selling nationalised firms or industries to the private sector.

Question 13

Fiscal policy

Answer 13

Government policy that uses the fiscal instruments of taxation, government spending and the government’s budgetary position to achieve particular policy objectives.

Question 14

Government transfers

Answer 14

A payment of money from a government to an individual for which no good or service is given in return.

Question 15

Progressive taxation

Answer 15

A tax imposed with the tax rate increasing as income rises. As a result, the rich pay a larger proportion of their income in tax than the poor.