Government Intervention

Question 1

Maximum price

Answer 1

A ceiling price set by the government on a good or service, above which it cannot rise. It may be enforced through government legislation.

Question 2

Guaranteed minimum price

Answer 2

Where the surplus output created is purchased by a government agency at the minimum price. The main aim of such a scheme is to protect producer incomes.

Question 3

Tradable pollution permits

Answer 3

Pollution permits that can be bought and sold in a market. They are an attempt to solve the problem of pollution by creating a market for it.

Question 4

Government failure

Answer 4

When government intervention leads to an inefficient allocation of resources and a net welfare loss.

Question 5

Distortion of price signals

Answer 5

The actions of government which distort the operation of the price mechanism and so misallocates resources.

Question 6

Minimum price

Answer 6

A floor price set by the government on a good or service, below which it cannot fall. It may be enforced through government legislation.

Question 7

Regulation

Answer 7

Government rules in markets to influence the behavior of consumers and producers.

Question 8

Law of unintended consequences

Answer 8

The actions of government, producers or consumers will always have effects that are unintended or unanticipated.

Question 9

Administration costs

Answer 9

The costs which arise in the formulation, monitoring and enforcing of government measures to correct market failure.

Question 10

Government Information gaps

Answer 10

The government has insufficient information to make rational economic decisions.