Purpose
this is a reason why governments intervene in markets.
What is market failure?pg 123
A government-imposed maximum price for a good is called what?
What is a price ceiling?
intervention in the market leads to a net loss of economic welfare rather than a gain.
What is government failure? pg 130
Name one way governments aim to improve the distribution of income.
What are indirect taxes and transfer payments? pg. 122
A government-imposed minimum price for a good is called what?
What is a price floor (or minimum price)?
Excessive bureaucracy in government intervention is often called what?
What is red tape?
When the government wants to encourage consumption of goods with positive externalities, it might use this tool.
What are subsidies? pg 123
Taxes imposed on goods that generate negative externalities (like pollution) are called what?
What are indirect taxes (or Pigouvian taxes)?pg122
Subsidies can lead to inefficiency if firms become reliant on them. This is known as what?
What is producer dependency?
Governments intervene in order to protect consumers from harmful goods. what are these goods called?
What is a demerit good (e.g., tobacco, alcohol)?
Instead of direct control, governments sometimes create a system where firms can buy and sell the right to pollute. What is this called?
What are tradable pollution permits (cap-and-trade)?pg126
When lobbying by interest groups leads to policies that favor them at the expense of society, it’s called what?
What is regulatory capture?
This type of good is usually underprovided by the market and is one reason for government provision.
What are public goods? 126
Governments often provide education and healthcare free or at low cost. These are examples of what kind of goods?
What are merit goods?
A government attempt to fix one failure that creates new inefficiencies is known as what?
What are unintended consequences?