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Theme 1: Introduction to markets and market failure
1.4 Government intervention
1.4.1 Methods of intervention
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Cards (34)
Subsidies can lead to market distortions by creating
artificial demand
.
Regulation refers to the enforcement of rules by governments to control market
activities
Match the type of regulation with its example:
Economic regulation ↔️ Utility price controls
Social regulation ↔️ Food safety standards
Environmental regulation ↔️ Emission standards
Order the effects of regulation on businesses:
1️⃣ Increases business costs
2️⃣ May stifle innovation
3️⃣ Requires effective enforcement
Regulation can stifle innovation by increasing
compliance costs
for businesses.
Regulation always leads to higher prices for consumers.
False
What is a price ceiling and its purpose?
Maximum price below equilibrium ||| Ensure affordability
Price controls are government-imposed limits on the prices that can be charged for goods and services in a
market
A price ceiling can lead to shortages because quantity demanded exceeds
quantity supplied
.
A price floor can lead to surpluses because quantity supplied exceeds
quantity demanded
.
Taxes are mandatory payments levied by the government on individuals and businesses to finance public goods and
services
A price floor is set above the
market equilibrium
.
A price ceiling is a maximum price set below market
equilibrium
What is a price floor designed to protect?
Producers
Match the price control with its effects:
Price Ceiling ↔️ Shortages, rationing
Price Floor ↔️ Surpluses, inefficiency
Rent control is an example of a
price ceiling
What are taxes used for by governments?
Funding public services
Direct taxes are levied on goods and services.
False
Indirect taxes are collected by
retailers
What is the formula for calculating the amount of tax?
T
a
x
=
Tax =
T
a
x
=
P
r
i
c
e
t
a
x
−
P
r
i
c
e
n
o
t
a
x
Price_{tax} - Price_{no tax}
P
r
i
c
e
t
a
x
−
P
r
i
c
e
n
o
t
a
x
Match the type of tax with its example:
Direct Tax ↔️ Income tax
Indirect Tax ↔️ Sales tax
What is the purpose of subsidies provided by the government?
Encourage production or consumption
Subsidies aim to lower prices for essential goods and
services
Subsidies can lead to
market distortions
.
What is the mathematical formula for calculating the price after a subsidy?
Price_{after subsidy} = Price_{original} - Subsidy Amount</latex>
Regulation refers to the enforcement of rules by
governments
What is one purpose of government regulation in markets?
Protect consumers
Match the type of regulation with its example:
Economic Regulation ↔️ Utility price controls
Social Regulation ↔️ Food safety standards
Environmental Regulation ↔️ Emission standards
How does regulation on carbon emissions affect the cost of production for businesses?
P
a
f
t
e
r
=
P_{after} =
P
a
f
t
er
=
P
b
e
f
o
r
e
+
P_{before} +
P
b
e
f
ore
+
C
C
C
State provision ensures universal access to
essential
goods and services regardless of income.
What is nationalization and its primary aim?
Government takeover for public benefit
Privatization seeks enhanced efficiency and market
responsiveness
Match the ownership type with its characteristic:
Nationalization ↔️ Government ownership
Privatization ↔️ Private ownership
What is the formula for calculating the value of a nationalized asset?
A
s
s
e
t
V
a
l
u
e
=
Asset Value =
A
sse
t
Va
l
u
e
=
C
a
s
h
F
l
o
w
s
÷
D
i
s
c
o
u
n
t
R
a
t
e
Cash Flows \div Discount Rate
C
a
s
h
Fl
o
w
s
÷
D
i
sco
u
n
tR
a
t
e
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