Government intervention Flashcards
my last deck (10 cards)
What is Government Intervention?
Where the government becomes involved in a situation in order to help with a problem
Why do governments monitor activities of large firms/ monopolies?
-> Without a government intervention/
regulation, firms would exploit consumers.
They use ANTI - COMPETITIVE practices
What are the Anti - competitive practices?
-> Increasing Price
-> Restricting consumer choice -> collusion
-> Raise barriers to entry -> Reduce price for a short time
-> Market sharing -> collude to supply diff regions
What is the role of government?
-> Encourage growth of small firms for an increased competition.
-> Lower barriers to entry
I-> Increasing the ability of firms to join
an industry
-> Using legislation (Anti - comp laws)
I-> Lower power of monopolies and
oligopolies
What is collusion?
-> In order to make higher profits, rival firms will agree to work together by setting higher prices
dirty colluders
colluder K till my bones decay.
Examples of government intervention
t_x_t_o_ chain of reasoning - negative externality
-Indirect tax, tax placed on the producer of the good.
-This has the effect of increasing cost of production
-The firm passes this onto consumers as higher prices
-Price increase reduces demand for the good
-How effective the change in price will be will depend on the elasticity of demand for the good
Causes a shift left in supply curve which also increases price but reduces quantity
Examples of government intervention
s_b_i_i_s chain of reasoning - positive externality
-A subsidy is a payment from the government to firms to increase output or decrease price
-This has the same effect of reducing the cost of production for firms
-So price goes down and consumption goes up
-Linked to PED
Causes a shift right in supply, increasing quantity as the price has gone down
Examples of government intervention
r_g_l_t_o_ / f_n_s chain of reasoning - negative externality
-Government could use regulation to reduce the harmful effects of externalities
-This could be either by stopping under 18’s smoking so they don’t get addicted
-Less people consuming means less negative externalities
-Ban smoking in public places which also reduces negative externalities.
-You could also enforce fines
-A fine is a penalty payment for breaking the regulation
-This should overall reduce negative externalities
Examples of government intervention
p_l_u_t_o_ p_r_i_s chain of reasoning - negative externality
-A pollution permit is a market based approach that limits the amount of pollution released by firms
-Firms are issued with permits which allow them to pollute a certain amount
-If a firm pollutes less than their permits allow, they can sell their permits to firms that find it harder to reduce pollution
Examples of government intervention
s_b_i_i_s chain of reasoning - negative externality
-a subsidy is a payment to a firm from the gov to provide more of the good
-act as a decrease in cost of prod
-therefore, firm can prod more for smaller cost
-price goes down, Quantity goes up
