2.4.2 Evaluation of Intervention

• The key objectives of government intervention in the economy include correcting market failures
• Maintaining low inflation and full employment is a key objective of government intervention known as stability
• A charge imposed on income or goods is known as a tax
• Steps in conducting a cost-benefit analysis

  1️⃣ Identify and quantify relevant costs and benefits

  2️⃣ Assign monetary values to costs and benefits

  3️⃣ Calculate the benefit-cost ratio
• Assigning monetary values to intangible benefits is a challenge in cost-benefit analysis.

  True
• VAT is an example of a tax imposed by the government.


  True
• What are the main types of government intervention methods?

  Regulations, taxes, subsidies, direct provision
• Taxes generate government revenue for public spending.


  True
• Direct provision ensures universal access to essential goods and services
• Match the government intervention type with its positive impact:

  Regulations ↔️ Correct market failures

  Taxes ↔️ Generate government revenue

  Subsidies ↔️ Support strategic industries

  Direct Provision ↔️ Ensure universal access
• What is a negative impact of taxes on consumer purchasing power?

  It reduces purchasing power
• Steps in conducting a cost-benefit analysis:

  1️⃣ Identify and quantify costs and benefits

  2️⃣ Assign monetary values

  3️⃣ Calculate benefit-cost ratio

  4️⃣ Interpret and decide
• One challenge in performing a CBA is assigning monetary values to intangible benefits
• What is a successful example of government intervention to reduce pollution?

  Environmental regulations in California
• Price controls can create shortages in the market.


  True
• Government policies can have unforeseen effects that undermine their intended goals
• What is a possible unintended consequence of excessive regulations?

  Increased bureaucracy
• What are some examples of government interventions that can distort market signals?

  Price controls, subsidies, taxes
• Bureaucracy and red tape reduce the overall efficiency of government interventions.


  True
• Taxes can reduce consumer purchasing power.


  True
• Direct provision addresses market failures in public goods
• The feasibility of a policy option depends on the specific market failure being addressed.


  True
• What does the objective of efficiency aim to correct in the economy?

  Market failures
• Macroeconomic stability is maintained through low inflation and full employment.


  True
• What is a negative impact of regulations?

  Higher costs for businesses
• Subsidies may require government funding, which can be costly.


  True
• Steps in conducting a cost-benefit analysis

  1️⃣ Identify and quantify all relevant costs and benefits

  2️⃣ Assign monetary values

  3️⃣ Calculate the benefit-cost ratio
• What is cost-benefit analysis (CBA)?

  A systematic evaluation method
• The first step in conducting a CBA is to identify and quantify all relevant costs and benefits
• Promoting a fairer distribution of income and wealth is a key objective of government intervention called equity
• Encouraging long-term economic growth is a key objective of government intervention.

  True
• Promoting a fairer distribution of income and wealth is called stability.

  False
• In a cost-benefit analysis, a benefit-cost ratio greater than 1 indicates positive net benefits
• Match the objective of government intervention with its description:

  Efficiency ↔️ Correcting market failures

  Equity ↔️ Fairer distribution of income

  Stability ↔️ Maintaining low inflation

  Growth ↔️ Encouraging long-term economic progress
• Agricultural subsidies to farmers are an example of government support
• Regulations control market behavior
• What is the purpose of subsidies in government intervention?

  Lower costs
• Government intervention methods aim to correct market failures and promote equity.


  True
• Regulations can lead to inefficiencies and higher costs
• Subsidies may distort market signals and lead to inefficient allocation of resources.


  True