Ch 4. Government Intervention in Microeconomics

Question 1

Command and Control

Answer 1

Government laws and regulation that must be followed

Question 2

Price controls

Answer 2

Setting of minimum or maximum prices by the government so that prices are unable to adjust to their equilibrium level determined by demand and supply.

Question 3

Price ceiling

Answer 3

Maximum price set by the government for a particular good, meaning that the price that can be legally charged by the sells of the good cannot be higher than the legal maximum price (below equilibrium)

Question 4

Welfare Loss

Answer 4

Represents social surplus or welfare benefits that are lost to society because resources are not allocated efficiently

Question 5

Price Floor

Answer 5

Minimum price set below the equilibrium price, in order to provide income support to farmers or to increase the wages of low-skilled workers (above equilibrium)

Question 6

Minimum Wage

Answer 6

Minimum price of labor set by governments in the labor market, in order to ensure that low-skilled workers can earn a wage high enough to secure them with access to basic goods and services.

Question 7

Indirect Taxes

Answer 7

Taxes levied on spending to buy goods and services, called indirect because, whereas payment of some or all of the tax by the consumer is involved, they are paid to the government authorities by the suppliers

Question 8

Direct Taxes

Answer 8

Taxes paid directly to the government tax authorities by the taxpayer, including personal income taxes, corporate income taxes and wealth taxes

Question 9

Subsidy

Answer 9

Amount of money paid by the government to firms for a variety of reasons; to prevent an industry from failing, to support producers’ incomes, or a form of protection against imports.