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SingaporeEconomicsQuick questions
Market Failure and Government Intervention
Quick questions on Government intervention in markets explained: O-Level Economics
4short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What are indirect taxes?Show answer
An indirect tax is a tax on a good or service, such as an excise duty on petrol or tobacco. It is a cost to producers, so it shifts the supply curve to the left, raising the price and cutting the quantity bought. This is used to reduce consumption of goods with external costs, and it makes the polluter pay.
What are subsidies?Show answer
A subsidy is a payment from the government to producers (or consumers) of a good, such as a subsidy for vaccination or public transport. It lowers the effective cost, shifting the supply curve to the right, lowering the price and raising the quantity bought. This is used to raise consumption of goods with external benefits.
What are information campaigns?Show answer
The government can provide information, such as health warnings on cigarettes or campaigns about the benefits of education. This tackles information failure by helping people judge the true costs and benefits, changing demand.
What is drawback?Show answer
It is hard to set the tax at exactly the right level, and a tax on a good with inelastic demand reduces the quantity only a little.
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