1.4 Government Intervention 0.0 / 5 ? EconomicsGovernment intervention in marketsA2/A-levelEdexcel Created by: chalky-nerdCreated on: 14-03-21 02:44 What are the 7 different ways that the government intervene to solve market failure? Indirect taxes Subsidies Max/min prices State provision of public goods Provision of information Tradable pollution permits Regulation 1 of 33 What can indirect taxes solve? Negative externalities 2 of 33 What are the advantages of indirect taxes? Social welfare is maximised Government revenue increases 3 of 33 What are the disadvantages of indirect taxes? It will not have an effect on goods with inelastic PED Taxes are politically unpopular 4 of 33 What can subsidies solve? Positive externalities 5 of 33 What are the advantages of subsidies? Social welfare is maximised Can encourage small businesses 6 of 33 What are the disadvantages of subsidies? Expensive for the government, and a high opportunity cost Firms can become over reliant 7 of 33 Where are maximum prices set? Below the market equilibrium 8 of 33 Where at minimum prices set? Above the market equilibrium 9 of 33 What goods are maximum prices imposed on? Goods with positive externalities 10 of 33 What goods are minimum prices imposed on? Goods with negative externalities 11 of 33 What are the advantages of imposing max/min prices? Brings about a level of equality, a more people will be able to afford the good (max) Increase social welfare 12 of 33 What are the disadvantages of imposing max/min prices? Will not have an effect on goods with inelastic PED (mininum) Difficult for government to know where to set the prices 13 of 33 What are tradable pollution permits? Purchasable permits which allow the owner to have emission up to a certain amount 14 of 33 How are tradable pollution permits supposed to reduce pollution? In order to reduce costs in the future, companies would invest in greener technology 15 of 33 What are the advantages of pollution permits? Raise government revenue Guaranteed that pollution will decrease as the number of permits is limited 16 of 33 What are the disadvantages of pollution permits? Expensive to police and monitor Firms may absorb the cost of the permit and pass it on to their consumers 17 of 33 How can state provision of public goods correct market failure? The state is providing goods which otherwise would be provided. This prevents the under provision of public goods 18 of 33 What are the advantages of the state providing public goods? Brings about a level of equality, everyone has access to the public goods Improved social welfare 19 of 33 What are the disadvantages of the state providing public goods? Expensive, therefore a high opportunity cost The government may produce the wrong combination of goods as the market mechanism is not involved 20 of 33 How can the provision of information correct market failure? It can help consumers make informed decisions 21 of 33 What are the advantages of the provision of information? Helps consumers act rationally Best used alongside other policies as economists may be able to predict consumer actions more easily 22 of 33 What are the disadvantages of the provision of information? Expensive and therefore high opportunity cost The government may not have all the information 23 of 33 How can regulation correct market failure? The government are able to impose laws and caps on goods to make sure social welfare is maximised 24 of 33 What are the advantages of regulation? Social welfare is maximised 25 of 33 What are the disadvantages of regulation? Laws can be expensive to monitor, incurring a high opportunity cost 26 of 33 What is government failure? When government intervention lead to market failure and net welfare loss 27 of 33 What are the 4 different ways government failure can occur? Distortion of price signals Unintended consequences Excessive administration costs Information 28 of 33 What is the distortion of price signals? When the government change price signals and distort the market mechanism 29 of 33 How can the distortion of price signals lead to government failure? The market is acting on misinformation and therefore can lead to inefficient allocation of resources 30 of 33 How can unintended consequences cause government failure? When consumers or producers act in unexpected ways and cause unintended consequences 31 of 33 How can excessive administration costs cause government failure? The cost of administering the policy may not be worth the increased social welfare 32 of 33 How can information gaps cause government failure? Some policies might be decided based on limited information 33 of 33
How the macroeconomy works: the circular flow of income, aggregate demand/aggregate supply analysis and related concepts 0.0 / 5
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