Government Intervention Flashcards
(14 cards)
What is the use of taxation?
To discourage the use of demerit goods (harmful goods).
What will a tax do on an externalities diagram? Draw a diagram
The tax would shift MPC up (MPC + tax) to solve the welfare loss to create a new equilibrium.
What are subsidies?
Subsidies are financial grants from the government to a firm to encourage specific activity or lower costs.
What is the effect of subsidies on a supply and demand diagram? Draw a diagram.
Shifts the supply curve to the right.
Draw consumer and producer benefit + total cost of subsidy.
go from the new equilibrium point (S+subsidy and D).
What is a minimum price?
It is a fixed price (price floor) created by the government set above the market equilibrium price.
Draw a price floor diagram.
The p min is above equilibrium.
What is a maximum price?
A fixed price (price ceiling) set by the government below the market equilibrium price.
Draw a price ceiling diagram.
The price max is below equilibrium.
What is the use of regulations?
Regulations incentivise changes in behaviour e.g. age restrictions.
What do tradable pollution permits do?
Tradable pollution permits give firms the legal right to pollute at a certain amount.
What do firms do if they are struggling to meet the pollution cap?
Firms could buy more permits.
Firms could invest in Green Technology to improve.
What is state provision?
State provision (provided by state) is when goods/services are provided by the state normally for free.
What is the use of information provision?
Information provision is funded by the government e.g. advertising/education so consumers know their true benefits or costs in their decision.
