1.5 Market Failure and Government Intervention Flashcards Preview

EDEXCEL Economics B Paper 1 > 1.5 Market Failure and Government Intervention > Flashcards

Flashcards in 1.5 Market Failure and Government Intervention Deck (22)
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1
Q

Define External Cost

A

The negative effect of an exchange to the third party that is ignored by the price mechanism

2
Q

Define Private Cost

A

The cost of a firm producing a good

3
Q

Define Social Cost

A

A combination of the External Cost and the Private Cost

4
Q

Define External Benefit

A

The positive effect on the third party

5
Q

Define Private Benefit

A

The positive effect on the third party

6
Q

Define Social Benfeit

A

A combination of the External and Private benefit

7
Q

Does the graph for Social Cost show overconsumption or underconsumption?

A

Overconsumption

8
Q

Does the graph for Social Benefit show overconsumption or underconsumption?

A

Underconsumption

9
Q

Give 3 ways in which the government can intervene to stop overconsumption

A

Taxation
Minimum Age
Reducing Desirability (e.g. pictures on cigarettes)

10
Q

Give 2 ways in which the government can affect underconsumption?

A

Subsidies

University Loans

11
Q

Define Market Failure

A

Market models that make assumptions and so aren’t reliable or effectively allocated, causing over or underconsumption

12
Q

Give the 4 causes of Market Failure

A

External Costs aren’t taken into account
Price mechanism doesn’t work in market with no competition
Some essential goods like healthcare are under consumed on the free market
When there is a lack of information about products

13
Q

Define Regulation

A

The government imposing rules on production and sale with laws and fines

14
Q

Define Legislation

A

Banning of harmful products

15
Q

Define Taxation as a method of government intervention

A

Increasing the price of a product, deterring its purchase and supply

16
Q

Define Subsidy as a method of government intervention

A

Increasing supply by reducing the cost for producers or consumers

17
Q

Define Voluntary Agreements as a method of government intervention

A

An agreement between a firm and the government

18
Q

Define Free Market

A

A market based on supply and demand where prices are set freely between consumer and producer with no government intervention

19
Q

Define Government Failure

A

Where the government intervention in a market fails and creates an inefficiency or leads to a misallocation of resources

20
Q

Define Bureaucracy

A

Paperwork (AKA red tape)

21
Q

How does Bureaucracy lead to Government Failure?

A

Taxpayers money is being wasted employing people to fill out paperwork

22
Q

Give 4 causes of Government Failure

A

Excessive Bureaucracy
Distortion of price signals
Unintended Consequences
Information Gaps