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Jill Econ Tools > All Govt Interventions > Flashcards

All Govt Interventions Flashcards

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1
Q

What is taxation?

A

The levying of tax.

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2
Q

What is a tax?

A

A required payment to a local, state, or national government.

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3
Q

What are indirect taxes?

A

Taxes levied on spending to buy goods and services.

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4
Q

What are the two types of indirect taxes?

A

Specific and Ad valorem.

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5
Q

What is a specific tax (indirect)?

A

There is a fixed amount that is charged per unit of a particular good, no matter the price of that good.

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6
Q

What is an Ad valorem tax (indirect)?

A

Charged as a proportion of the price.

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7
Q

How do indirect taxes affect supply?

A

Indirect taxes increase costs of producers, causing the supply curve to shift left.

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8
Q

What does a specific tax diagram show?

A

A parallel shift of the supply curve; tax is the same fixed amount at a low price and high price.

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9
Q

What does an Ad valorem tax diagram show?

A

A non-parallel shift of the supply curve; bigger impact on higher prices.

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10
Q

What are negative externalities taxed?

A

Indirect taxes on goods with negative externalities, e.g., alcohol.

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11
Q

What is the aim of taxation on negative externalities?

A

To make the producer and consumer cover costs of externalities.

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12
Q

What does the total amount of tax paid show on a diagram?

A

Green is what the consumer contributes to tax; yellow is what the producer pays to tax.

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13
Q

What does the amount of tax consumer pays depend on?

A

Price elasticity of demand.

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14
Q

If price is inelastic, what happens to tax costs?

A

Most of all extra cost is passed on to the consumer.

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15
Q

If price is elastic, who takes on most of the extra cost?

A

The producer is more likely to take on most of the extra cost.

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16
Q

What are the advantages of indirect taxes?

A

Cost of negative externalities internalised, reduces demand and production, revenue can offset externalities.

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17
Q

What are the disadvantages of indirect taxes?

A

Difficult to value cost of negative externalities, inelastic demand may not reduce, increased production costs reduce competitiveness.

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18
Q

What is a subsidy?

A

A sum of money granted by the government or a public body to assist an industry or business.

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19
Q

What is the aim of subsidies?

A

To encourage production and consumption of goods and services with positive externalities.

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20
Q

What are the results of subsidies?

A

Price falls and quantity demanded increases.

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21
Q

What does a subsidies diagram show?

A

Orange is consumer gain; red is producer gain.

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22
Q

What are the advantages of subsidies?

A

Benefit of positive externalities internalised, price reduced, change preferences, internationally competitive.

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23
Q

What are the disadvantages of subsidies?

A

Difficult to value benefits of positive externalities, opportunity cost, inefficiency, effectiveness depends on elasticity of demand.

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24
Q

What is a maximum price (price ceiling)?

A

A price set by the government above which market price is not allowed to rise.

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25
What does a maximum price diagram show?
Set below equilibrium, leading to excess demand and shortage supply.
26
What is a minimum price (price floor)?
A price set by the government where below market price is not allowed to fall.
27
What does a minimum price diagram show?
Set above market equilibrium, reducing demand and increasing supply, leading to excess supply.
28
What are the advantages of maximum prices?
Increase fairness, allow more people to purchase goods, prevent monopolies from exploiting consumers.
29
What are the disadvantages of maximum prices?
High demand leads to some unable to buy, may need rationing, excess demand can lead to black markets.
30
What are the advantages of minimum prices?
Producers have guaranteed minimum income, encourages investment, stockpiles can be used when supply is reduced.
31
What are the disadvantages of minimum prices?
Consumers pay higher prices than equilibrium, inefficient allocation of resources, high opportunity cost for government spending.
32
What is state provision?
The government provides goods to counteract market failure, paid for by taxes.
33
What are examples of state provided goods/services?
NHS/healthcare, education, fire and police services.
34
How does state provision overcome market failure?
Increases consumption of merit goods, reduces inequalities, redistributes income.
35
What are the disadvantages of state provision?
Less incentive for efficiency, fails to respond to consumer demands, opportunity cost of other goods.
36
What is privatisation?
Transfer of ownership of a firm from the public sector to the private sector.
37
Why are publicly owned firms often inefficient?
Due to lack of competition, leading to market failure.
38
What does privatisation include?
Sale of public firms, contracting out services, competitive tendering, public-private partnerships.
39
What are the advantages of privatisation?
Increased competition, improved resource allocation, government can afford important facilities, lower taxes.
40
What are the disadvantages of privatisation?
Less focus on safety and quality, may need regulating to prevent monopolies, higher long-term costs.
41
What is government regulation?
Rules enforced by authority to control activities of producers and consumers.
42
What are the impacts of regulations?
Reduce demerit goods, reduce monopoly power, protect consumers and producers.
43
What are the challenges of setting regulations?
Difficult to determine correct regulations, expensive to impose, monitoring compliance is costly.
44
What is deregulation?
Removing or reducing regulations to increase competition.
45
What are the advantages of deregulation?
Improves resource allocation and efficiency by reducing bureaucracy.
46
What are the disadvantages of deregulation?
Difficult to deregulate natural monopolies, may not fix other market failures, less safety for consumers.
47
What is competition policy?
Regulations designed to promote competition and restrict monopoly practices.
48
What is the aim of competition policy?
Protect consumer interests by promoting competition.
49
What does the CMA monitor?
Mergers, agreements between firms, opening of markets to competition, financial support from government.
50
Why does the CMA monitor mergers?
To stop mergers that may give a firm too high market share.
51
Why does the CMA monitor agreements between firms?
To prevent anti-competitive practices like price fixing and collusion.
52
What are some markets with their own regulating bodies?
OFWAT (water), OFCOM (communication), OFGEM (gas and electricity).
53
What are the advantages of competition policy?
Improves efficiency, allocates resources efficiently, improves fairness to consumers.
54
What are examples of government intervention?
Privatisation to introduce competition, regulation to prevent monopoly power, deregulation to increase competition.
55
How can regulation control monopoly power?
By preventing firms from gaining monopoly power or reducing existing monopoly power.
56
What are tradable pollution permits?
Pollution permits that can be bought and sold in a market to solve pollution problems.
57
What is the use of tradable pollution permits?
Market mechanism where pollution is given a value, allowing firms to buy and sell permits.
58
What is the EU emission trading system?
A tradable pollution permit scheme.
59
What are the advantages of tradable pollution permits?
Encourage efficiency, firms can sell permits, government can invest revenue in pollution reduction.
60
What are the disadvantages of tradable pollution permits?
Difficult to set optimal pollution levels, may create market failures, high administrative costs.
61
What are property rights?
The ability of an individual to own and exercise control over scarce resources.
62
What is the extension of property rights used for?
To internalise negative externalities by charging consumers and producers for using property.
63
What happens in the absence of property rights?
Market failure occurs.
64
What are the disadvantages of extending property rights?
Difficult for government to extend, high costs of legal action, difficulties in valuing property use.
65
How does government intervene to help consumers?
By providing information on costs and benefits to help make rational choices.
66
What are examples of government provided information?
School and hospital league tables, healthy eating campaigns, compulsory food labeling.
67
What is nationalisation?
The sale of private sector businesses to the government.
68
What are the advantages of nationalisation?
Provides needed goods/services, sets output/prices for societal benefit, easily regulated.
69
What are the disadvantages of nationalised industries?
Tend to be inefficient, lack incentive to reduce costs, less prudent action.
70
How does promoting small businesses increase competition?
Through tax breaks, subsidies, reducing regulations, and helping entrepreneurs.
71
What can government intervention lead to?
Misallocation of resources and net welfare loss.
72
What are market distortions from government intervention?
Income taxes disincentivize work, price fixing distorts signals, subsidies may encourage inefficiency.
73
What is government bureaucracy?
Official rules, regulations, and paperwork.
74
How does government bureaucracy interfere with markets?
Prevents market failure, interferes with supply and demand, causes time lags.
75
What are conflicting policy objectives?
A source of government failure.
76
What can cause government failure?
Inadequate information, high administrative costs, regulatory capture, time delays.

Jill Econ Tools (21 decks)

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