Government Intervention in the Economy

These flashcards cover key concepts about government intervention in the economy, focusing on definitions, applications, and implications.

Government Intervention

The involvement of the government in the economic activities to influence the economy.

Free Market

An economic system where prices are determined by unrestricted competition between privately owned businesses.

Privatization

The process of transferring ownership from government to the private sector.

Crown Corporations

Government-owned and operated companies in Canada.

Property Rights

The ownership of specific property by individuals and the ability to determine how such property is used.

Information Gaps

Situations where consumers and producers may not have adequate information, leading to market inefficiencies.

Natural Monopoly

A market situation where a single producer is more efficient than multiple competing producers in providing service.

Third Party Effects (Externalities)

• When a transaction between a buyer and a seller has a positive/negative impact on others.

• The government may choose to interfere with the free market to protect society.

• Example: The government may require a factory to install pollution control devices to improve air quality

Public Goods

Goods that are not provided by the market as they may not be profitable, such as national defense.

Price Ceilings

• Used if the government feels that prices are too high. The government sets a maximum price that is below the one established in a free market. Results in a shortage (Qd > Qs).

• The government may attempt to eliminate the shortage by using subsidies or by becoming a producer itself.

• Previously used in Canada on apartment rent, oil prices, and concert tickets; used for pharmaceutical drugs.

Price Floors

• Used if the government feels that prices are too low.

• The government sets a minimum price that is above the one established in a free market. Results in a surplus (Qd < Qs).

• Government may attempt to eliminate the surplus by restricting output using quotas and/or using industry advertising to increase demand.

• Used in Canada for agricultural products and minimum wage.

Excise Taxes

Taxes imposed on specific goods and services to increase revenue or discourage usage.

Deadweight Loss

The loss of economic efficiency when the equilibrium outcome is not achievable or not achieved.

Minimum Wage

The lowest wage permitted by law or by a special agreement.

Subsidies

Financial support extended to an economic sector to encourage production.

Market Fluctuations

Variability in economic activity, including periods of boom and recession.

Income Inequality

The unequal distribution of income within a population.

Market Basket Measure (MBM)

Canada's official poverty line based on the cost of a specified basket of goods and services.

Excise Tax Example

A $5 tax on shoes, illustrating how taxes shift the supply curve and affect prices.

Sugar Tax

A proposed tax on sugary snacks to discourage consumption, supported by Jamie Oliver.

Argument for Privatizing LCBO

• Could lead to increased competition

• A wider selection of products

• Potentially lower prices for consumers due to more efficient private sector operations.

Argument Against Privatizing LCBO

• Result in a significant loss of direct revenue for the Ontario government, which currently funds public services.

• It could also reduce governmental control over alcohol sales, potentially impacting public health and safety.

Argument for Privatizing CBC

• Could eliminate the need for taxpayer subsidies, freeing up government funds.

• A privately run CBC might also become more market-responsive and innovative.

Argument Against Privatizing CBC

Risks losing its public service mandate to provide diverse Canadian content, local news, and programming that might not be profitable for a private entity, potentially weakening national cultural identity.

Why should Canada implement Sugar Tax?

• Could lead to improved public health outcomes by reducing sugar consumption, while also generating significant revenue for health initiatives.

• May encourage consumers to choose healthier options and reduce the burden of diet-related health issues.

What evidence is there that trophy hunting is an effective conservation strategy?

Trophy hunting can generate revenue that supports wildlife conservation efforts and habitat preservation, potentially benefiting both local communities and endangered species populations.