Theme 1 - Government intervention and failure

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  • Created by: becky.65
  • Created on: 08-05-17 13:44
What type of market failure in governemnt intervention designed to address?
Reducing the impact of external costs, ensuring under-produced products are avaliable to all, ensuring over-consumed products are discouraged or prevented and reducing the impact of anti-competitve business behaviour
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What policies can the government use to combat market failure?
Regulation, legitslation, indirect taxation, grants and subsidies and voluntary agreements
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How can regulation combat market failure?
It enforces standards across whole industries and influences the extent to which negative externalities affect the quality of life
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What is the Polluter Pays Principle?
The price of a product that pollutes should reflect both the private costs of production and the external costs
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How can legislation combat market failure?
New laws can be passed to restrict activites that create negative externalities and over-consumption because failure to comply will result in a penalty
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What are the advantages of legislation?
Expected standards are clear, failure to comply has consequence and the consequences are known
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What are the disadvantages of legislation?
The law may be difficult to enforce, enforcement can be expensive and penalties may not deter behaviour
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How can indirect taxation combat market failure?
It can increase the price of products that are over-produced, making them more expensive and reducing demand
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How can grants and subsidies combat market failure?
They can make under-consumed products cheaper and encourage increased consumption
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How can voluntary agreements combat market failure?
When there is widespread agreement on the need for change so businesses adopt common codes of practice that reduce harmful externalities
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What is an incentive?
Any factor that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives
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How can an incentive combat market failure?
It will change consumer or producer behaviour to reduce external costs
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What are some other ways of correcting market failure?
Education, free provision and advertising
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Why do governments sometimes not correct market failure once they have intervened?
They do not have enough information to make good decisions, they decide upon popular policies that have not been thought through and the bodies responsible for implementing policies do not move fast enough
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How can distortion of price signals be an unintended consequence of government intervention?
Incentives may not work in the way the government expects and the extra money may result in the job not being done correctly so they gain more profit
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How can excessive administrative costs be an unintended consequence of government intervention?
Because some businesses considers it cheaper to pollute and pay the fines rather than clean up its production process
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Other cards in this set

Card 2

Front

What policies can the government use to combat market failure?

Back

Regulation, legitslation, indirect taxation, grants and subsidies and voluntary agreements

Card 3

Front

How can regulation combat market failure?

Back

Preview of the front of card 3

Card 4

Front

What is the Polluter Pays Principle?

Back

Preview of the front of card 4

Card 5

Front

How can legislation combat market failure?

Back

Preview of the front of card 5
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