Chap 24

Question 1

How much the government intervenes in mixed economies differs according to:

Answer 1

1. The perceived extent of market failure
2. How effective government policy measures are

Question 2

The government’s influence on the local economy

Answer 2

1. State-owned industries- the government decides how much to produce & wages
2. Private sector industries- subsidized by the government (eg. to prevent unemployment)

Question 3

Define Local government

Answer 3

A government organisation with the authority to administer a range of policies within an area of the country.

Question 4

What does the local government do?

Answer 4

Impose taxes and charges and may receive grants from the national government to provide a range of goods and services including libraries, housing and local roads

Question 5

Functions of the government

Answer 5

1. Owner of industries and assets such as schools and hospitals
2. A producer
3. A regulator
4. Collector of taxes
5. Director of the level of economic activity

Question 6

What products does the government produce?

Answer 6

1. Of key importance/ essential and hence should be available to all (housing, on grounds of equity and merit and public goods)
2. Produced by a natural monopoly
3. Which the private sector may under-produce or not produce

Question 7

Define Natural monopoly

Answer 7

an industry where a single firm can produce at a lower average cost than two or more firms because of the existence of significant economies of scale

Question 8

Define the 2 key industries

Answer 8

Strategic industries:
industries that are important for the economic development and safety of the country.

National champions:
industries that are, or have the potential to be, world leaders.

Question 9

A common form of partnership between the government and private sector firms

Answer 9

The private sector initially provides the finance for a state project, such as the building of a hospital. The private sector firm then builds it and maintains it for a number of years. The government rents it and operates it, buying it back over time.

Question 10

How does employing people help a government to achieve some of its aims for the economy?

Answer 10

1. Reduce unemployment: employ more workers
2. Control rises in prices: limit wage rises of its own workers and the prices charged by its enterprises
3. Raising the standard of employment practice: providing its workers with good quality training, preventing discrimination and ensuring good pensions to its workers will set an example

Question 11

The role of the government at an international level

Answer 11

1. Promote free international trade, allowing firms to export and import what they want
2. Place restrictions on what can be purchased from and sold to other countries
3. Policies towards foreign multinational companies (MNCs) wanting to set up in their countries
4. Members of trade blocs such as the European Union (EU)
5. Belong to international organizations (eg. WTO to promote free international trade)

Question 12

Why are governments for/against MNCs in their country?

Answer 12

Attract them
1. Generate jobs
2. Increase the output that is produced in the country

Stop them
1. Drive domestic firms out of business

Question 13

Define Trade bloc

Answer 13

a regional group of countries that remove trade restrictions between themselves

Question 14

Define Free international trade

Answer 14

The exchange of goods and services between countries without any restrictions