6.4 The Effects of Government Intervention in Different Market Structures

• Market failure contrasts with an efficient market where resources are allocated to maximize net benefit.
• Match the type of market with its characteristic:

  Efficient Market ↔️ Maximizes net benefit

  Market Failure ↔️ Loss of economic welfare
• Market failure results in a loss of economic welfare
• An efficient market maximizes net benefit.
• Order the following tools the government uses to address market failures:

  1️⃣ Taxes and Subsidies

  2️⃣ Regulations

  3️⃣ Direct Provision

  4️⃣ Price Controls
• In a perfectly competitive market, price ceilings can lead to shortages
• Subsidies in a perfectly competitive market encourage production and lower prices for consumers.
• In monopolies, price controls in the form of ceilings can reduce prices but may lead to shortages
• Match the government intervention with its effect on monopolies:

  Price Ceilings ↔️ Lower prices, potential shortages

  Anti-Trust Laws ↔️ Increased competition

  Nationalization ↔️ Better service, potentially higher costs
• Market failure occurs when the market fails to allocate resources
• What is the primary goal of government intervention in monopolies?

  Protect consumer welfare
• Setting price ceilings can reduce prices but might lead to shortages
• What is an example of anti-trust law in the United States?

  Sherman Act
• Nationalization involves the government taking over monopolies to ensure public interest is prioritized.
• What is the effect of anti-trust laws on monopolies?

  Increased competition
• Market failure occurs when the market fails to allocate resources efficiently
• Match the market type with its outcome:

  Efficient Market ↔️ Optimal economic welfare

  Market Failure ↔️ Loss of economic welfare
• What are common tools used by the government to address market failures?

  Taxes and subsidies
• A carbon tax is an example of a tax used to reduce negative externalities.
• What is an example of direct provision by the government to address market failure?

  National defense
• Order the government interventions in addressing market failures based on their primary purpose:

  1️⃣ Taxes to reduce negative externalities

  2️⃣ Subsidies to encourage positive externalities

  3️⃣ Regulations to enforce standards

  4️⃣ Direct provision to ensure universal access

  5️⃣ Price controls to protect consumers
• What is the government's aim when intervening in market failures?

  Improve economic welfare
• In a perfectly competitive market, government intervention aims to correct market failures and enhance efficiency
• What is a potential consequence of setting a price ceiling in a perfectly competitive market?

  Shortages
• Subsidies in a perfectly competitive market can lower prices for consumers.
• The impact of government intervention in a perfectly competitive market depends on the type of intervention
• Why is government intervention in monopolies more direct compared to perfect competition?

  Concentrated market power
• In oligopolies, price ceilings can reduce prices but may lead to shortages
• Match the government intervention with its effect in oligopolies:

  Anti-Trust Laws ↔️ Increased competition

  Deregulation ↔️ New firms enter the market
• Government intervention in oligopolies balances fostering competition with maintaining efficient economies of scale.
• What is the primary characteristic of firms in monopolistic competition?

  Product differentiation
• Order the government interventions in monopolistic competition based on their aim to promote competition:

  1️⃣ Anti-Trust Laws to prevent collusion

  2️⃣ Regulations to ensure product quality

  3️⃣ Deregulation to reduce entry barriers
• In monopolistic competition, regulations ensure product quality and safety
• What are the key tools used by the government to promote competition and efficiency in monopolistic competition?

  Anti-trust laws, regulations, deregulation
• Anti-trust laws prevent collusion and anti-competitive practices
• Regulations in monopolistic competition ensure product quality and safety.
• What is the primary effect of deregulation in monopolistic competition?

  Reduces barriers to entry
• Match the government intervention with its effect on the market:

  Anti-Trust Laws ↔️ Increased competition

  Regulations ↔️ Improved quality

  Deregulation ↔️ New entrants
• Why is government intervention in monopolistic competition less intense compared to monopolies?

  Existing competitive environment
• Market failure occurs when the market fails to allocate resources efficiently