1.5.2 government intervention and failure Flashcards
(7 cards)
1
Q
Why do governments intervene in the market?
A
To correct market failure.
2
Q
What are some methods of government intervention? [3]
A
- Regulation + legislation
- Indirect taxation
- Grants and subsidies
3
Q
What positive externalities does the legal age a child has to stay in education for have?
A
The minimum school age means young people have to be in school until 16, and education or training until 18.
This results in a higher skilled workforce.
4
Q
How does indirect taxes correct market failure?
A
Could reduce the quantity of demerit goods consumed, by increasing the price of the good.
5
Q
What is a subsidy?
A
A payment from the government to a producer to lower their costs of production and encourage them to produce more.
6
Q
What are the disadvantages of subsidies? [4]
A
- Opportunity cost to the government
- Potential higher taxes
- Potential for firms to become inefficient if they rely on subsidy
- Government failure if they subsidise less efficient industries
7
Q
What are some causes of government failure? [4]
A
- Distortion of price signals
- Unintended consequences
- Excessive administrative costs
- Information gaps
