1.4 Government Intervention Flashcards

A tax imposed to reduce negative externalities, shifting the supply curve left and internalising the externality to maximise social welfare.

A tax based on the value of a good or service, causing a proportional shift in the supply curve.

Internalises externalities, maximises social welfare, and raises government revenue for further intervention.

Difficult to target due to imperfect information, may create black markets, ineffective for inelastic goods, regressive impact on poorer households.

Government payments to reduce production costs, shifting the supply curve right to address positive externalities or information gaps.

Maximises social welfare, encourages small businesses, promotes equality, and supports exports.

High opportunity cost, difficult to target, may cause inefficiency, and are hard to remove once introduced.

A legally imposed price below equilibrium to make goods affordable, often leading to excess demand.

A legally imposed price above equilibrium to discourage consumption of goods with negative externalities, often leading to excess supply.

Permits allowing pollution up to a set limit, incentivising firms to reduce emissions and invest in green technology.

Guarantees pollution reduction, raises government revenue, encourages green technology, and promotes efficiency.

Expensive to monitor, raises business costs, and difficult to determine the optimal number of permits.

Government provision of non-excludable and non-rival goods to correct market failure and improve social welfare.

Government action to reduce asymmetric information, helping consumers make rational decisions and improving market efficiency.

Government-imposed laws or caps to address externalities, prevent exploitation, and ensure full information provision.

Occurs when intervention leads to net welfare loss due to distortion of price signals, unintended consequences, excessive administration costs, or information gaps.