Government Intervention in the Economy

RAS and Government Intervention in Economies

Redistributive

Government measures to redistribute income and provide support to various groups in society by ensuring a minimum level of income for all Australians.

Allocative

Government intervention to reallocate resources due to market failures in providing certain goods and services at socially optimal levels.

Stabilisation

Government intervention aimed at stabilizing the economy to achieve sustainable economic growth and enhance living standards.

Welfare benefits

Financial support provided by the government to individuals or families in need.

Progressive taxes

Tax system where the tax rate increases as the taxable amount increases.

Public goods

Goods or services provided by the government for the benefit of all citizens, not just those who pay for the goods or services.

Compulsory superannuation

Mandatory pension savings scheme where employers are required to contribute to their employees' retirement funds.

Lorenz Curve

A graphical representation showing the income distribution among different sections of the population.

Gini Coefficient

A measure of income inequality within a population, ranging from 0 (perfect equality) to 1 (perfect inequality).

Absolute poverty

A condition where individuals live below the minimum level of income needed for basic subsistence.

Relative poverty

A situation where individuals do not achieve the minimum standard of living defined by society.

Personal income tax

Tax levied on an individual's income, with higher earners paying a higher proportion of their income.

Social security

Government program providing financial assistance to individuals who are unemployed, disabled, or elderly.

Income redistribution

The process of reallocating income from wealthier individuals to those with lower incomes to reduce inequality.

Externality

A side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved.

Private Cost

Expenses incurred by producers in creating output and costs borne by consumers in acquiring goods and services.

Private benefits

Profits gained by producers and benefits received by consumers from consuming goods and services.

Social Cost

The total cost of producing a good or service, including private costs and additional costs borne by society due to a private transaction.

Social Benefit

The total benefit from consuming a good or service including both the private benefit plus any positive spillover effects as a result of a private transaction.

Externalities

Terminology. A negative externality is a cost that is suffered by a third party as a consequence of an economic transaction.

Negative Externality

A cost that is suffered by a third party as a consequence of an economic transaction, leading to overproduction or overconsumption due to the market price not reflecting all social costs.

Positive Externality

A benefit enjoyed by a third party as a result of an economic transaction, causing underconsumption or underproduction because the market fails to consider all the benefits.

Negative Consumption Externality

An example is smoking, where the consumption of the good imposes costs on third parties.

Negative Production Externality

An example is pollution from a factory, where the production process imposes costs on third parties.

Positive Consumption Externality

An example is university education, where the consumption of the good benefits third parties.

Positive Production Externality

An example is a beehive, where the production of the good benefits third parties.

Government Intervention - Positive Externalities

The government aims to see more production or consumption by providing subsidies or public goods and services.

Government Intervention - Negative Externalities

The government aims to reduce consumption or production through command-and-control policies or market-based policies.

Sustainable Economic Growth

3.5% GDP growth per year is targeted for the Australian economy.

Stable Prices with Inflation

Aim for 2-3% inflation rate in the Australian economy.

Full Employment

Targeting a 4.5% unemployment rate in the Australian economy.

Stabilisation of the Economy

Involves keeping growth steady and sustainable, regulating economic activity, and managing the budget.

Fiscal Policy

Direct government intervention using taxes and spending to stabilize the economy.

Budget Deficit

Occurs when government spending exceeds revenue, leading to increased economic activity and growth stimulation.

Budget Surplus

Occurs when government revenue exceeds spending, resulting in reduced economic activity and potential inflation control.