All real-world markets fail to some extent. For government intervention to be justified the market failure needs to be ____. When evaluating possible policies it is important to consider the cause and type of market failure together with the risk of ____ consequences. Taxes and subsidies provide market-based solutions. Market failure occurs with an externality because market participants fail to take full account of all the costs and benefits. It is ____ for them to ignore the costs and benefits that fall on others but socially ____ outcomes occur where they are all taken into account. In the case of a negative externality a ____ equal to the size of the externality internalises the cost. The market is now incentivised to reach an efficient outcome. Where externalities are positive a ____ achieves the same outcome. In contrast maximum and minimum prices cause the market to move into ____. Maximum prices are often used to protect consumers in the case of basic necessities. Examples include ____ for housing and energy costs. Minimum prices have been used for ____ in parts of the UK. Maximum prices can cause shortages and can also lead to the unintended ____ of reducing quality. Maximum prices lead to excess supply which is a waste of ____ resources and can lead to ____ markets. Regulation is widely used to correct market failure. It is easy to understand and relatively cheap. Regulation is used to control ____ externalities such as pollution, in the case of demerit goods such as alcohol and ____, in the case of merit goods such as ____ , to reduce externalities associated with road use and to minimise ____ failures. In the extreme regulation can ban an activity but to be economically justified the socially optimal level of output needs to be ____ or below. To be effective regulation needs to be accompanied by sufficient sanctions. If penalties are not high enough rational economic agents will break the rules and pay the ____. Trade pollution permits are used in particular to reduce negative production externalities associated with ____ gasses. Under the scheme a certain number of permits are issued and polluters must have a permit to match their pollution. The permits are tradable and a price for ____ emerges. The allocation of permits is set to ____ the price of carbon over time. The rising price provides an incentive for firms to adopt greener ____. In theory it provides a market-based efficient outcome since firms from whom adopting green technologies is harder and more ____ can buy permits in the short run. However, in reality the price of carbon has proved volatile and there have been many accusations of ____. In the case of pure public goods government provision will be needed (____) or at a minimum a government will need to arrange and ____ for provision. For example, in the case of the prison service, much of this is ____ to private firms. Direct provision runs the risk of ____ and contracting-out can introduce competition, flexibility and greater expertise. But contracting out also risks the ____ problem, collusive tendering and short term contracts may limit incentives for private sector ____. Government provision also happens for some merit goods such as education and healthcare. These are ____ goods and not public goods. This is done for a number of reasons such as ____. There are other measures in place to control the information asymmetry between ____ and patients and because there is no price mechanism other methods must be used to allocate ____ resources. Information failure is an important source of ____ failure. One solution is the provision of information. A government might run an advertising campaign on the dangers of smoking for example or it might ____ that private sector firms need to provide ____ information, perhaps in an easily understood format. However ____ economics suggests that providing more information does not always achieve better outcomes. This is where governments might use nudges. A nudge is a measure which influences ____ economic agents but would have no impact on rational agents. Examples include the traffic light system of information provision on food packaging, the "____" message for fruit and vegetables and the unpleasant photos on ____ packages.

Tutor Intervention in markets

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