Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Econ the 3rd > Market faliure > Flashcards

Market faliure Flashcards

(69 cards)

Start Studying
1
Q

Indirect tax

A

A tax levied on expenditure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Direct tax

A

Tax levied on income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Incidence of tax

A

The way in which tax is spread between buyers and sellers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Specific tax

A

A tax of fixed amount on purchases of a commodity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Ad valorem tax

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Excess burden of sales tax

A

The loss to society following the imposition of a sales tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Polluter pays principle

A

The idea that a firm causing damage to society should be forced to pay for that damage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Externality

A

A cost/benefit to a 3rd party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Hypothecation of tax

A

Spending tax revenue in the area it was generated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the effect of a specific tax

A

It reduces supply by increasing the producers costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

If a good has an inelastic PED what effects would imposition of a sales tax have

A

Higher revenue for government
Smaller fall in consumption

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What factors affect the effectiveness of a sales tax on reducing externalities

A

The size of the tax
The elasticity of the good/service

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Advantages of using tax to correct market failure

A

Market based solution
Raises revenue for government

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Disadvantages of using tax to correct market failure

A

Difficult to measure externalities
Indirect taxed are regressive
Some taxes may be difficult to collect

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Regressive

A

Has a larger effect on people with lower incomes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the effect of a subsidy

A

Shifts supply to the right

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Why may a subsidy be better than taxation as a method of correcting market failure

A

Encourages consumption of merit goods instead of discouraging consumption of demerit goods
Taxes can be used to fund the subsidy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Why may a subsidy be worse than taxations

A

Costs money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Government expenditure

A

Where the government provides goods instead of a private firm

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Why may state provision compare favourably to subsidy

A

Subsidy cannot provide public goods
State provision ensures fairer distribution of wealth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Why may state provision compare unfavourably to subsidy

A

State provision is more expensive
The lack of freedom in the market may stifle innovation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Advantages of state provision

A

Reduces inequality - All citizens have the same access
Supports macroeconomic objectives

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Disadvantages of state provision

A

Expensive for government
Non-market based solution
Encourages dependence on government

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Price control

A

A legal minimum or maximum price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Why may setting a maximum price be worse than using a subsidy
Maximum prices fail to increase consumption
26
Why may using taxation be better than setting a minimum price
Taxation raises revenue
27
Advantages of maximum prices
They are cheap Reduces a monopolies purchasing power
28
Disadvantages of setting a maximum price
Supply is decreased because there is less profit Will often lead to shortages Black markets may emerge
29
Advantages of setting a minimum price
Encourages investment Can cause stockpiles to build up
30
Disadvantages of setting a minimum price
Lowers utility High opportunity cost Allocative inefficiency
31
Disadvantages of setting a minimum price
Lowers utility High opportunity cost Allocative inefficiency
32
Merger
2 or more firms joining to form a new firm
33
What is a cartel
An agreement between firms on price or output with the goal of maximising profit
34
What is competition policy
Used to protect consumers and firms from being exploited by monopolies
35
Advantages of competition policy
Cheap The threat of enforcement is often enough to correct the market faliure
36
Disadvantages of competition policy
The size of the fine may be unclear The CMA may become too close to firms
37
Buffer stock
A scheme intended to stabilise the price of a commodity by buying supply when it is cheap and selling when it is high
38
Advantages of buffer stock
Market based solution May be self funding
39
Disadvantages of buffer stock
May be expensive if storage is required for too long Only works with commodities that can be stored for a long time
40
Why may a buffer stock be used instead of a subsidy
Buffer stocks are self-funding Means that the market is not reliant on government intervention
41
Why may a subsidy be better than a buffer stock
The initial cost of a buffer stock may be too high In buy years the process of buying buffer stock increases the price for normal customers
42
Legislation
Laws created by governmnet to enfoce regulations
43
Prohibition
An attempt to prevent the consumption of a demerit good by making it illegal
44
Advantages of regulation
Cheap because the infrastructure already exists for enforcing them and because the threat of enforcement is often enough
45
Disadvantages of regulation
Difficult to set the correct strength They increase firms costs May require international agreement
46
Why may regulation be used instead of taxation
If the goal is zero consumption taxation is pointless Tax will not change behaviour where price is not a factor
47
Why may taxation be used instead of regulation
Taxes raise revenue The cost to society of regulations are harder to predict
48
Information provision
When the government educates the public to help consumers make better choices
49
What is a pollution permit system
A system for controlling pollution based on allowing firms to buy permits that allows them to pollute
50
Advantages of using a pollution permit system
Creates incentives using a market based solution The total level of pollution is limited as there can only be so many permits
51
Disadvantages of a pollution permit system
Must be enforced Can be complex to set up and run
52
Why may a pollution permit system be better than taxation
Reduces the cost to society for reducing pollution Firms know how to cut pollution better than government does
53
Why may a tax be better than a pollution permit system
The correct number of permits may be difficult to measure
54
Contracting out
A situation in which the public sector pays a private firm to fulfill their objectives
55
Competitive tendering
A process by which the private sector bid for a contract to provide a public service
56
public-private partnership
an arrangement by which a government service or private business is funded and operated by a combination of partnership between the public and private sector
57
Private finance initiative
A funding arrangement by which the private sector runs a public asset in return for payment from government
58
What is market failure
When the competitive outcome produced by the free market is not the best outcome for society
59
What are the 4 types of externality
Positive/negative externality of production Positive/negative externality of consumption
60
What is allocative efficiency
Free market equilibrium
61
What are the 4 types of information failure
Asymmetric information - when 1 party has more information than the other Moral hazard - when a party acts in bad faith because they know someone else will bear the consequences Merit goods Demerit goods
62
What are the 4 features of public goods
non-excludable non-rivalrous No marginal cost of production non - rejectable
63
What does non-excludable mean in relation to public goods
If one person consumes the good that makes it impossible to prevent other from consuming it
64
What does non-rivalrous mean in relation to public goods
Consumption of the good by one person doesn't reduce the amount available for others
65
What is non-rejectability in relation to public goods
Once the good has been provided then you cannot avoid consuming it e.g. the military
66
What is a quasi-public good
A good that has some of the traits of public goods but not others
67
What is a free rider
Someone who benefits from a good/service but doesnt pay for it
68
What are merit goods
Goods that are under consumed because people dont understand the benefits that come with them
69
WHat are demerit goods
Goods that are overconsumed because people dont understand the dangers that come with consuming them

Econ the 3rd (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions