Government in Markets Flashcards

1️⃣ Familiarise yourself with the flashcards:

  • Look through all the flashcards to see what's on both sides.
  • Make sure you understand the information on each card. If something's unclear, click the link to the revision notes at the bottom of the page for more details.

2️⃣ Test yourself:

  • Look at the question or prompt on each card and try to remember the answer before flipping it over.
  • Check the answer and make a note of any cards you find challenging and need to go over more.

3️⃣ Consistently Review and Practice:

  • Use spaced repetition: spend more time on the cards you struggle with and go over them more often.
  • Regularly review all the flashcards to help you better understand and retain the information over time.

Note: We may include questions that have multiple correct answers. It's useful to remember specific examples to understand these concepts better.

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What is market failure?

When a free market does not give the best outcome for society. Resources are not used in the best way.

What is an indirect tax and how does it change price and quantity?

A tax on spending, like VAT or excise duty. It raises firms' costs, so prices rise and the quantity sold falls.

What is a subsidy and what effect does it have?

Money paid by the government to firms or consumers. It cuts costs, so prices fall and output rises.

What is a maximum price (price cap) and what problem can it cause?

A legal limit that stops the price going above a set level. If set below the market price, it can cause shortages.

What is a minimum price and give one example?

A legal limit that stops the price going below a set level. If set above the market price, it can cause surpluses; an example is the minimum wage.

How can regulation correct problems in a market?

The government sets rules, such as safety standards, pollution limits, or licences. This can cut harm and improve quality.

What is a public good and why does the government provide it?

A good you cannot stop people using. One person's use does not reduce others' use, like street lighting. Firms cannot charge everyone who uses it, so the government pays for it using taxes.

How does the government fix information failure?

By requiring clear labelling and honest adverts. It can ban false claims and fine firms that mislead consumers.

What is competition policy and who enforces it in the UK?

Rules that stop firms fixing prices or abusing market power and keep markets competitive. The Competition and Markets Authority (CMA) enforces these rules in the UK.

What is a merit good and how might the government support it?

A good that people may under-consume, even though it has wider benefits, like vaccinations. The government can subsidise it or provide it for free.

What is a demerit good and how might the government reduce its use?

A good that people may over-consume because they ignore the harm, like cigarettes. The government can tax it, set age limits, or restrict advertising.

What is government failure?

When government action makes outcomes worse or wastes resources. For example, a price cap set too low can cause long queues and shortages.

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