Unit 4: Government Intervention

Question 1

Name 3 reasons for government intervention

Answer 1

Correct market failure

Improve performance of UK economy

Address unacceptable situations e.g human rights violations

Question 2

Name the 4 forms of gov interventions

Answer 2

Price controls

Regulation

Direct provision

Taxes and subsidies

Question 3

Name an advantage and a disadvantage of minimum prices

Answer 3

Adv: Can plan investment and output

Disadv: Encourages overproduction

Question 4

Name an advantage and a disadvantage of maximum prices

Answer 4

Adv: Allows lower incomes to afford product

Disadv: Shortages

Question 5

Name 2 advantages and disadvantages of buffer stocks

Answer 5

Adv: Reduces instability, gives certainty to invest

Disadv: Expensive to maintain, optimum price floor hard to determine

Question 6

Name an advantage and disadvantage of regulation as a form of gov intervention

Answer 6

Adv: Effective as most adhere to law

Disadv: Money to enforce, black markets

Question 7

Name 2 advantages and 2 disadvantages of direct provision as a form of intervention

Answer 7

Adv: encourage merit goods, achieve ethical aims

Disadv: costly, inefficient as not subject to market forces

Question 8

Name an advantage and disadvantages of indirect taxes

Answer 8

Adv: disincentive consumption

Disadv: how to choose optimum rate

Question 9

Name an advantage and disadvantages of subsidies

Answer 9

adv: encourage supply and consumption

disadv: expensive, ineffective if inelastic

Question 10

Define government failure

Answer 10

When government intervention leads to a net welfare loss

Question 11

Name 6 causes of government failure

Answer 11

I nadequate information
C onflicting objectives
A dministrative cost
U nintended consequences
S elf interest
E xpertise

Question 12

Name an example of government failure

Answer 12

£4bn spent on unusable PPE during COVID pandemic