1.4 Government Intervention

Question 1

Pros and Cons of Max/Min pricing (MMSTRIPS)

Answer 1

P- Maximum ensures good are affordable, Minimum ensure producers get a fair price-> reduced poverty/ decrease inequality

C-Causes excess supply/demand
- difficult to know where to set price
- creation of black markets

Question 2

Pros and Cons of Subsidies (MMSTRIPS)

Answer 2

P- welfare can be maximised
- encourages exports

C-high OC
-hard to target as size of externality is unknown
- hard to remove
- can create an inefficient firm if in place a while

Question 3

Pros and Cons of Taxes (MMSTRIPS)

Answer 3

P-social welfare is maximised
-raises govt revenue->can use on education to fix info gap etc

C- Hard to target the tax as externality size is unknown
- black market creation
-regressive
-politically unpopular

Question 4

Pros and Cons of Regulation (MMSTRIPS)

Answer 4

P-prevents exploitation of consumers
C- expensive to monitor-> OC
- firms may pas higher costs onto consumers