1.3 Government Intervention

Question 1

What is government intervention?

Answer 1

The market equilibrium is not optimal so they intervene.

Question 2

What are the government intervention methods?

Answer 2

Indirect Taxes
Regulations
Informations
Subsidies
Max and Min prices.

Question 3

What is an indirect tax?

Answer 3

An extra price on production passed onto consumer as price of consumption.

Question 4

What is ABCD of indirect taxes?

Answer 4

^ tax
v production
^ price
v Qd

Question 5

What is the top shaded area on an indirect tax graph?

Answer 5

Consumer tax burden.

Question 6

What is the bottom shaded area on an indirect tax graph?

Answer 6

Firm tax burden.

Question 7

What moves on the indirect tax graph.

Answer 7

Supply moves from S1 to S2 (moves left)

Question 8

Why can an indirect tax be ineffective?

Answer 8

When price is inelastic e.g. addictive goods.

Question 9

What are the negatives of indirect tax?

Answer 9

Tax leads to an increase in price which could lead to inflation and fall in real income.

Question 10

What are the positives of indirect tax?

Answer 10

More money for movement to spend
Stop people from buying bad products.

Question 11

What are subsidies?

Answer 11

a sum of money from government to decrease cost of production to create a decrease in price to increase quantity demanded.

Question 12

What moves in a subsidy graph?

Answer 12

S1 to S2 (where S2 is further right) = opposite to indirect tax.

Question 13

What does the shaded area represent in a subsidy graph?

Answer 13

Cost of subsidy to government.

Question 14

What is the ABCD of subsidy.

Answer 14

^ subsidy v cost of production v price ^quantity demanded.

Question 15

Positives of Subsidy

Answer 15

Qd increases
Less costs = more production revenue
Less price = less inflation

Question 16

Negatives of subsidy

Answer 16

Cost to government = financial and opportunity cost
Consumers might not respond
price inelastic demand.

Question 17

What is a regulation?

Answer 17

Making a product a necessity or banning it completely.

Question 18

What happens if you make a product a necessity?

Answer 18

Increase in Qd then increase in price.

Question 19

What happens to the graph with a necessity?

Answer 19

Demand increase (moves to right)

Question 20

What happens if you introduce an age limit?

Answer 20

Qd is decreased.

Question 21

What happens to graph if age limit is introduced?

Answer 21

Demand decreases (moves to left)

Question 22

What are examples of supply regulations?

Answer 22

Environmental regulations
Health and safety

Question 23

What will environmental regulations shift in the graph?

Answer 23

Supply increases from S1 to S2 (left)

Question 24

What will limiting production regulations do to the graph?

Answer 24

Decrease supply from S1 to S2 (right)

Question 25

What is a maximum price?

Answer 25

Price can’t be higher than x (French bread).

Question 26

What do maximum prices cause?

Answer 26

A shortage because companies don’t want to produce more for a lower price.

Question 27

What is the maximum price graph?

Answer 27

Question 28

What is a minimum price?

Answer 28

Price can’t be lower than x (Scottish beer)

Question 29

What do minimum prices cause?

Answer 29

Companies have too much stock because less people will buy = surplus.

Question 30

What is the minimum price graph?

Answer 30

Yellow area = cost of intervention

Question 31

Example of Indirect tax

Answer 31

Sugar in soft drinks

Question 32

Example of Subsidies

Answer 32

Solar panels

Question 33

Examples of Demand regulations

Answer 33

Age Limit to alcohol
Face Masks

Question 34

Examples of Supply Regulations

Answer 34

Environmental limits
health and safety

Question 35

Example of Max Price

Answer 35

Price cap on energy bills UK reduced to help cost of living

Question 36

Example of Min Price

Answer 36

Minimum wage
Minimum alcohol price in Scotland to stop alcoholic relation deaths 50p per unit