2268370
Description
Flashcards by Amardeep Kumar, updated more than 1 year ago
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Created by Amardeep Kumar
over 9 years ago
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| Question | Answer |
| What is the rationale for government intervention? | To maximize economic efficiency and correct market failure by allocating scarce resources. |
| Why does the market not provide public goods? | Because there is no way to generate a profit, and free riders cannot be excluded. |
| What is the consequence of income inequality? | Some consumers are excluded from the market because they lack market power and are unable to afford certain goods. |
| What is the result of an absence of government intervention? | It may lead to higher levels of crime, poverty and unemployment. |
| How do indirect taxes and subsidies correct market failure? | Indirect taxes - as market price rises, supply decreases and equilibrium falls for demerit goods. Subsidies - as market price falls, supply will increase and the equilibrium will rise for merit goods. |
| What is government regulation? | This is a type of legislation which is used to limit the consumption of goods. methods include a minimum age to buy certain goods and some goods being banned altogether. |
| What are the 3 forms of price control? | 1. Maximum prices 2. Minimum prices 3. Buffer stock shemes |
| What goods does the state provide? | Public goods and merit goods. |
| What is government failure and what are the 3 causes for this? | This implies that the cost of government intervention outweighs the benefit. The 3 main causes are inadequate information, conflicting objectives and administrative costs. |
| How does inadequate information result in government failure? | The government base their costs on the information they have. If they are not able to gather all relevant information, then they will make 'costly' decisions. |
| How do conflicting objectives lead to government failure? | Every aim the government sets out to achieve has an opportunity cost e.g. excise taxes on tobacco have resulted in the growth of illegal markets. |
| How do administrative costs result in government failure? | The costs of correcting market failure may outweigh the benefit e.g. when students drop out of higher education, economic resources devoted to their education go to waste. |
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