1.4 Government intervention

Question 1

1.4.1 A)
purpose of indirect tax

Answer 1

put on goods w/ neg externalities to try reduce market failure. As ^ cost of production = v ss and ^ cost = v dd
(Graph in book)

Question 2

1.4.1 A)
adv / dadv of indirect tax

Answer 2

A) market now produced @ social opt = max social welfare, ^ govt rev which could be used to solve other externalities, depends on what govt does with the money extra

D) leads to black markets, if good is inelastic may not reduce output/ comsumption

Question 3

1.4.1 A)
purpose of subsides

Answer 3

(Graph in book)
^ ss as cost of production v. used on pos externalities to inc consumption

Question 4

1.4.1 A)
adv / dadv of subsides

Answer 4

A) market now produced @ social opt = max social welfare

D) high opp cost from govt, can cause producers to become ineff

Question 5

1.4.1 A)
purpose of max

Answer 5

(Graph in book)
for max price to work mist be below current eq
max price is a legally imposed price for supplies set on goods woith pos externalites prevents monopoly.

Question 6

1.4.1 A)
purpose of min

Answer 6

(Graph in book)
for min price to work must be above current eq
discourages production of neg externalites and encoruages production w pos externalities.

Question 7

1.4.1 A)
adv / dadv of max / min

Answer 7

A) helps inc social welfare. max ensure affordablity min ensure fair price. both reduct poverty and ^ equality

D) difficult to know where to set price, creates black market

Question 8

1.4.1 B)
what is trade pollution permits as govt intervention

Answer 8

owner pollute up too certain amount govt controlled so max amount of pollution gives incentive to reduce emissions

Question 9

1.4.1 B)
adv / dadv of trade pollution permits as govt intervention

Answer 9

A) guarnted reduction in emission due to max amount pollution, ^govt revenue
D) expensive to moniter + police, ^ busniess cost.

Question 10

1.4.1 B)
what is state provision of public goods as govt intervention

Answer 10

govt produced public goods instead of priv sector to reduce market failure.
(more detail somewhere else)

Question 11

1.4.1 B)
adv / dadv of state provision of public goods as govt intervention

Answer 11

A) correct market failure, equality, can help econmomy growth ( healthcare, education)

D) expensive, ^opp cost, govt many be in eff due to no incentive to cut costs. govt has conflicting objects

Question 12

1.4.1 B)
adv / dadv of provision of infomation as govt intervention

Answer 12

pretty ofc what this is

A) rational actions
D) expensive, customers may not listen

Question 13

1.4.1 B)
what is regulations as govt intervention

Answer 13

govt imposed laws and caps to ensure MSB = MSC or that full info provided ensure no exploitation

Question 14

1.4.1 B)
adv / dadv of regulations as govt intervention

Answer 14

A) overcome market failure, max social welfare
D) expensive to police, opp cost, costs may be passed onto consumers, may reduce competition.

Question 15

1.4.2 A)
What is govt failure

Answer 15

When govt interventiuon to correct market failure leads to greater net social welfare loss.

can happen if a policy fails to create enough of an incentive to change.

Question 16

1.4.2 B)
What are the causes of govt failure

Answer 16

distortion of price signals
unintended consequences
excessive administrative costs
information gap

Question 17

1.4.2 B)
How can Distortion of price signals lead to govt failure

Answer 17

Govt give subsides to ineff firms. they become reliant on it and dont try become more eff / competitve. This wouldnt work in free market, but govt distorted
these price signals.this leads to an inefficient
allocation of resources

Question 18

1.4.2 B)
How can Unintended consequences lead to govt failure

Answer 18

Regulations try to v neg externalities due to overproduction. governments can often set regulation levels too high. increase in
the costs of production for firms. v profit
socially optimum level will actually be lower than before
fewer firms are in the market, causing overall output in the market to fall.

Question 19

1.4.2 B)
How can Excessive administrative costs lead to govt failure

Answer 19

government intervenes in a market where there is
excessive pollution, implementing a trade pollution permit scheme.

The cost of policing the
pollution levels of firms involved can be extremely high
benefits have to be even higher than this

Question 20

1.4.2 B)
How can Information gaps costs lead to govt failure

Answer 20

Imperfect info leads to irra`tional decision making. likly to set regualtion at level not at social opt.