Government Intervention (1.4)

Question 1

Government intervention

Answer 1

Governments intervene in the market to correct market failure

Question 2

Maximum Price

Answer 2

A price where the consumption or production of a good is to be encouraged and so the good does not become too expensive to produce or consume

Question 3

Minimum Price

Answer 3

A price where the consumption or production of a good is to be discouraged and ensures the good never falls below a certain price

Question 4

Advantages of Cap and Trade

Answer 4

• benefits the environment
• government can raise revenue
• raises revenue for greener firms

Question 5

Disadvantages of Cap and Trade

Answer 5

• can lead to relocation of firms
• firms may pass the higher costs of production to the consumer
• competition could be restricted
• could be expensive to monitor

Question 6

State provision of public goods

Answer 6

The government could provide public goods which are under provided in the free market

Question 7

Provision of Information

Answer 7

By providing information the govenrment can ensure there is no information failure so consumers and firms can make informed economic decisions

Question 8

Regulation

Answer 8

The government could use laws to ban consumers from consuming a good. They could also make it illegal not to do something

Question 9

Causes of government failure

Answer 9

• distortion left price signals
• unintended consequences
• excessive administrative costs
• information gaps