Week 14 - gov intervention

Question 1

why do governments intervene in markets

Answer 1

Question 2

government failure definition

Answer 2

Question 3

why might government intervention result in government failure ( 3 reasons)

Answer 3

Question 4

state provision definition and where it occurs

Answer 4

Question 5

state provision diagram

Answer 5

they decide how much to provide by making the supply curve vertical

they don’t know how much to provide due to imperfect info

Question 6

what are the 4 main reasons for state provision

Answer 6

Question 7

why does the state provide public goods

Answer 7

due to the free rider problem, because otherwise there would be no arm forces for example

Question 8

why does the state provide merit goods

Answer 8

there is still a free market there as private education also exists

counteracts the principle agent problem as the people deciding whether their kid goes to school is the parents and they remove that chance of no education

Question 9

why does the state provide natural monopolies

Answer 9

Question 10

why is the train sector not fully nationalized

Answer 10

creates regional monopolies
> often more efficient then state provided, dyanmically efficient

comes with the cost that they can exploit consumers since they are profit maximisers and look to gain more profits over social and consumer welfare

Question 11

what are 3 issues of state provision

Answer 11

• encourages inefficiency due to lack of competition
  > costs rise and inefficiencies
• discourages dynamic efficiency since they exist whether they make a profit or a loss so don’t need to innovate for consumers or answer them
• doesn’t always best satisfy the economic problem

Question 12

public-private partnership and example

Answer 12

building new hospital through private finance initiatives (PFI)
the government will pay them for the maintenance of the hospital and they will intake no costs of the building or maintenance

Question 13

3 benefits of public-private partnerships

Answer 13

politically the 3rd one as they don’t have to name the costs yet until the future

Question 14

3 costs of public-private partnerships

Answer 14

so ends up costing state more instead of just borrowing money and making it themselves

Question 15

partial privatization evaluation

Answer 15

• gain the benefits of private sector efficiency
• gain one off profit from selling ownership and shares in the state business
• by retaining enough shares allows them to have govt oversight in making sure everything goes well

Question 16

regulation definition

Answer 16

Question 17

what are 6 examples of regulation

Answer 17

Question 18

what is the rational of introducing regulation

Answer 18

Question 19

what are 3 problems with regulation

Answer 19

Question 20

regulatory recapture

Answer 20

an industry becomes very close with a regulator that is regulating that industry.

a classic example is the regulator regulating an industry they used to work in > personal connections (friends and ex-workers)

= may be able to influence decisions of the regulator if they became too close to industry