Define indirect tax .

An indirect tax is a tax levied by the government on producers , increasing their cost of production , which is passed on to consumers as a higher price.

A subsidy is a payment to a firm that reduces the costs of production and encourages an increase in the output of a good or service.

Define internalising the externality .

Internalising the externality means forcing producers to pay for the external costs of their activity, for example by taxing air pollution to raise the cost of production.

Which intervention suits an over-provided good?

An over-provided good is best addressed with an indirect tax , which raises its price and reduces consumption or production.

Which intervention suits an under-consumed good?

An under-provided or under-consumed good is best addressed with a subsidy , which lowers its price and increases output and consumption.

Why can a sugar tax fail to cut consumption much?

A sugar tax may fail to cut consumption much because demand can be price inelastic , so consumers keep buying despite the higher price.

Give one advantage of indirect taxes for the government.

Indirect taxes raise revenue for the government, which could be used to fund healthcare and education initiatives.

Give one disadvantage of subsidies for producers.

Subsidies can discourage firms from becoming more efficient or competitive , as they become reliant on financial assistance from governments.

True or False? A subsidy raises the price of a good.

False. A subsidy lowers the cost of production and therefore reduces the price of a good.

True or False? Indirect taxes can create illegal markets as consumers try to avoid paying them.

True. Consumers may seek to avoid the tax, creating illegal markets for the taxed good.

True or False? Sin taxes tend to fall hardest on high-income consumers.

False. Sin taxes often affect low-income consumers disproportionately, worsening inequality.

Subsidies may disproportionately benefit consumers, for example subsidies on electric vehicles.

Subsidies may disproportionately benefit higher-income consumers, for example subsidies on electric vehicles.

There is an associated with government spending on subsidies.

There is an opportunity cost associated with government spending on subsidies.

Regulation is the process of monitoring and enforcing laws aimed at limiting the harm caused by the external costs of consumption or production.

A fine is a monetary penalty imposed for breaking laws or regulations.

Define pollution permit .

A pollution permit allows a firm to pollute up to a certain amount, and any surplus can be sold to other firms for additional revenue.

What determines the price of a pollution permit?

The price of a pollution permit is determined by demand and supply in the permit market.

Why are regulatory agencies created?

Regulatory agencies are created to enforce the law and ensure that regulations are not broken.

When will a firm switch to cleaner technology under a permit scheme?

A firm will switch to cleaner technology when the price of additional permits is greater than the cost of investing in new pollution technology.

Give one advantage of using fines and regulation.

Fines and regulation act as a strong deterrent , encouraging individuals and businesses to comply with the law.

Give one disadvantage of pollution permits.

A disadvantage is that firms may relocate production to places where they can pollute without limits.

True or False? A fine can generate extra revenue for the government.

True. Fines can generate extra government revenue as well as deterring harmful behaviour.

True or False? Issuing too many pollution permits strengthens the incentive to cut pollution.

False. If the government issues too many permits, allowing high pollution levels, there is little incentive to reduce pollution.

True or False? Regulation can create underground illegal markets.

True. Regulation may create underground illegal markets, which could generate even higher external costs on society.

The cost of a permit becomes an additional cost of production, which should reduce .

The cost of a permit becomes an additional cost of production, which should reduce supply .

Heavy-polluting firms have to additional permits from less-polluting firms.

Heavy-polluting firms have to buy additional permits from less-polluting firms.

Define competition policy .

Competition policy is government policy that aims to make markets more competitive and to ensure that the public interest is protected .

Define deregulation .

Deregulation is the removal of government regulations that raise industry costs or act as a barrier to entry , promoting competition and contestability.

Define privatisation .

Privatisation is the sale of a government-owned firm to the private sector, which encourages new entrants who feel they can compete more effectively.

Name the three main forms of consumer exploitation.

The main forms of consumer exploitation are higher prices , lack of choice and poor quality products .

How does competitive tendering promote competition?

Competitive tendering lets the private sector bid to supply government contracts, which generates more private sector activity and increases competition.

What does price regulation do to a monopoly?

Price regulation sets maximum prices on a monopoly in order to lower prices and increase output.

How can a regulator allow a merger while protecting competition?

A regulator can allow a merger but insist the new firm sells certain assets , which limits its market share.

Which UK law gives consumers rights to refunds and repairs?

The Consumer Rights Act 2015 gives consumers rights to refunds, repairs or replacements if goods are faulty, not as described or not fit for purpose.

Give one drawback of competition policy.

Competition policy can reduce monopoly profits used for R&D, leading to less innovative products and production processes.

True or False? Monopolists can restrict output and raise prices.

True. Monopolists can restrict output and raise prices, which is not in the best interest of consumers.

True or False? Profit regulation gives monopolies a strong incentive to lower their costs.

False. Profit regulation gives no incentive to lower costs, so if costs are high, consumers end up paying higher prices.

True or False? Competition policy can be expensive and time consuming to enforce.

True. It can be expensive and time consuming to ensure firms or industries are complying with competition policies.

A key function of a regulator is to monitor merger and activity.

A key function of a regulator is to monitor merger and takeover activity.

Providing tax incentives or subsidies to can increase the number of new entrants.

Providing tax incentives or subsidies to small firms can increase the number of new entrants.

Define minimum wage .

A minimum wage is a legally imposed wage level that employers must pay their workers, set above the market rate.

Define excess supply of labour .

Excess supply of labour occurs when the quantity of labour supplied exceeds the quantity demanded, creating the potential for unemployment .

What is the main aim of a minimum wage?

The main aim of a minimum wage is to improve equity and avoid the exploitation of workers.

Which sectors are most affected by a minimum wage?

A minimum wage most affects workers in lower-paid sectors such as retail, hospitality and agriculture .

What happens to labour supply when a minimum wage is imposed?

When a minimum wage is imposed above the market rate, the supply of labour increases as workers are incentivised by the higher wage.

What happens to labour demand when a minimum wage is imposed?

When a minimum wage is imposed, the demand for labour by firms decreases because they face higher production costs.

Give one advantage of a minimum wage.

A minimum wage guarantees a minimum income for the lowest paid workers, helping to improve their standard of living.

How can a minimum wage lead to lower government tax revenues?

If a minimum wage raises firms' costs and increases unemployment , government tax revenues fall and benefit payments rise.

True or False? A minimum wage can raise firms' costs of production, which they may pass on as higher prices.

True. Higher wage costs may lead firms to raise the prices of their goods and services.

True or False? Raising the minimum wage further increases the excess supply of labour.

True. Raising the minimum wage further distorts the market, contracting labour demand and extending labour supply, increasing the excess supply of labour.

True or False? A minimum wage always increases unemployment.

False. Higher wages can raise consumption and total demand, increasing firms' demand for labour, so unemployment does not always rise.

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Government Intervention (Edexcel IGCSE Economics): Flashcards

Exam code: 4EC1

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FrontGovernment Intervention: Taxation & Subsides
Define indirect tax.

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Cards in this collection (53)

Define indirect tax.
An indirect tax is a tax levied by the government on producers, increasing their cost of production, which is passed on to consumers as a higher price.
Define subsidy.
A subsidy is a payment to a firm that reduces the costs of production and encourages an increase in the output of a good or service.
Define internalising the externality.
Internalising the externality means forcing producers to pay for the external costs of their activity, for example by taxing air pollution to raise the cost of production.
Which intervention suits an over-provided good?
An over-provided good is best addressed with an indirect tax, which raises its price and reduces consumption or production.
Which intervention suits an under-consumed good?
An under-provided or under-consumed good is best addressed with a subsidy, which lowers its price and increases output and consumption.
Why can a sugar tax fail to cut consumption much?
A sugar tax may fail to cut consumption much because demand can be price inelastic, so consumers keep buying despite the higher price.
Give one advantage of indirect taxes for the government.
Indirect taxes raise revenue for the government, which could be used to fund healthcare and education initiatives.
Give one disadvantage of subsidies for producers.
Subsidies can discourage firms from becoming more efficient or competitive, as they become reliant on financial assistance from governments.
True or False?
A subsidy raises the price of a good.
False.
A subsidy lowers the cost of production and therefore reduces the price of a good.
True or False?
Indirect taxes can create illegal markets as consumers try to avoid paying them.
True.
Consumers may seek to avoid the tax, creating illegal markets for the taxed good.
True or False?
Sin taxes tend to fall hardest on high-income consumers.
False.
Sin taxes often affect low-income consumers disproportionately, worsening inequality.
Subsidies may disproportionately benefit consumers, for example subsidies on electric vehicles.
Subsidies may disproportionately benefit higher-income consumers, for example subsidies on electric vehicles.
There is an associated with government spending on subsidies.
There is an opportunity cost associated with government spending on subsidies.
Define regulation.
Regulation is the process of monitoring and enforcing laws aimed at limiting the harm caused by the external costs of consumption or production.
Define fine.
A fine is a monetary penalty imposed for breaking laws or regulations.
Define pollution permit.
A pollution permit allows a firm to pollute up to a certain amount, and any surplus can be sold to other firms for additional revenue.
What determines the price of a pollution permit?
The price of a pollution permit is determined by demand and supply in the permit market.
Why are regulatory agencies created?
Regulatory agencies are created to enforce the law and ensure that regulations are not broken.
When will a firm switch to cleaner technology under a permit scheme?
A firm will switch to cleaner technology when the price of additional permits is greater than the cost of investing in new pollution technology.
Give one advantage of using fines and regulation.
Fines and regulation act as a strong deterrent, encouraging individuals and businesses to comply with the law.
Give one disadvantage of pollution permits.
A disadvantage is that firms may relocate production to places where they can pollute without limits.
True or False?
A fine can generate extra revenue for the government.
True.
Fines can generate extra government revenue as well as deterring harmful behaviour.
True or False?
Issuing too many pollution permits strengthens the incentive to cut pollution.
False.
If the government issues too many permits, allowing high pollution levels, there is little incentive to reduce pollution.
True or False?
Regulation can create underground illegal markets.
True.
Regulation may create underground illegal markets, which could generate even higher external costs on society.
The cost of a permit becomes an additional cost of production, which should reduce .
The cost of a permit becomes an additional cost of production, which should reduce supply.
Heavy-polluting firms have to additional permits from less-polluting firms.
Heavy-polluting firms have to buy additional permits from less-polluting firms.
Define competition policy.
Competition policy is government policy that aims to make markets more competitive and to ensure that the public interest is protected.
Define deregulation.
Deregulation is the removal of government regulations that raise industry costs or act as a barrier to entry, promoting competition and contestability.
Define privatisation.
Privatisation is the sale of a government-owned firm to the private sector, which encourages new entrants who feel they can compete more effectively.
Name the three main forms of consumer exploitation.
The main forms of consumer exploitation are higher prices, lack of choice and poor quality products.
How does competitive tendering promote competition?
Competitive tendering lets the private sector bid to supply government contracts, which generates more private sector activity and increases competition.
What does price regulation do to a monopoly?
Price regulation sets maximum prices on a monopoly in order to lower prices and increase output.
How can a regulator allow a merger while protecting competition?
A regulator can allow a merger but insist the new firm sells certain assets, which limits its market share.
Which UK law gives consumers rights to refunds and repairs?
The Consumer Rights Act 2015 gives consumers rights to refunds, repairs or replacements if goods are faulty, not as described or not fit for purpose.
Give one drawback of competition policy.
Competition policy can reduce monopoly profits used for R&D, leading to less innovative products and production processes.
True or False?
Monopolists can restrict output and raise prices.
True.
Monopolists can restrict output and raise prices, which is not in the best interest of consumers.
True or False?
Profit regulation gives monopolies a strong incentive to lower their costs.
False.
Profit regulation gives no incentive to lower costs, so if costs are high, consumers end up paying higher prices.
True or False?
Competition policy can be expensive and time consuming to enforce.
True.
It can be expensive and time consuming to ensure firms or industries are complying with competition policies.
A key function of a regulator is to monitor merger and activity.
A key function of a regulator is to monitor merger and takeover activity.
Providing tax incentives or subsidies to can increase the number of new entrants.
Providing tax incentives or subsidies to small firms can increase the number of new entrants.
Define minimum wage.
A minimum wage is a legally imposed wage level that employers must pay their workers, set above the market rate.
Define excess supply of labour.
Excess supply of labour occurs when the quantity of labour supplied exceeds the quantity demanded, creating the potential for unemployment.
What is the main aim of a minimum wage?
The main aim of a minimum wage is to improve equity and avoid the exploitation of workers.
Which sectors are most affected by a minimum wage?
A minimum wage most affects workers in lower-paid sectors such as retail, hospitality and agriculture.
What happens to labour supply when a minimum wage is imposed?
When a minimum wage is imposed above the market rate, the supply of labour increases as workers are incentivised by the higher wage.
What happens to labour demand when a minimum wage is imposed?
When a minimum wage is imposed, the demand for labour by firms decreases because they face higher production costs.
Give one advantage of a minimum wage.
A minimum wage guarantees a minimum income for the lowest paid workers, helping to improve their standard of living.
How can a minimum wage lead to lower government tax revenues?
If a minimum wage raises firms' costs and increases unemployment, government tax revenues fall and benefit payments rise.
True or False?
A minimum wage can raise firms' costs of production, which they may pass on as higher prices.
True.
Higher wage costs may lead firms to raise the prices of their goods and services.
True or False?
Raising the minimum wage further increases the excess supply of labour.
True.
Raising the minimum wage further distorts the market, contracting labour demand and extending labour supply, increasing the excess supply of labour.
True or False?
A minimum wage always increases unemployment.
False.
Higher wages can raise consumption and total demand, increasing firms' demand for labour, so unemployment does not always rise.
The level of the minimum wage often varies based on a worker's .
The level of the minimum wage often varies based on a worker's age.
A minimum wage may incentivise workers to be more , helping to offset higher wages.
A minimum wage may incentivise workers to be more productive, helping to offset higher wages.

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