Government Intervention and Government Failure

Question 1

Government failure

Answer 1

a misallocation of resources arising from government intervention

Question 2

Indirect tax

Answer 2

a tax levied on expenditure on goods or services (as opposed to a direct tax, which is a tax charged directly to an individual based on a component of income)

Question 3

Specific tax

Answer 3

a tax of a fixed amount imposed on purchases of a commodity

Question 4

Incidence of a tax

Answer 4

the way in which the burden of paying a sales tax is divided between buyers and sellers

Question 5

Ad valorem tax

Answer 5

a tax levied on a commodity set as a percentage of the selling price

Question 6

Subsidy

Answer 6

a grant given by the government to producers to encourage production of a good or service

Question 7

Excess burden of a sales tax

Answer 7

the deadweight loss to society following the imposition of a sales tax

Question 8

Minimum wage

Answer 8

a system designed to protect the low paid by setting a minimum wage rate that employers are permitted to offer workers

Question 9

Buffer stock

Answer 9

a scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high, and selling when supply is low

Question 10

Prohibition

Answer 10

an attempt to prevent the consumption of a demerit good by declaring it illegal