Chapter 4 Flashcards
Why governments intervene
- Earn revenue for the governmnet
2.provide support to films
3.Provide support to households on low incomes
4.Influence levels of production of firms
5.Influence level of consumption of households/counsumers
6.correct market faliure
7.promote equity
Define Price controls
setting of minimum or maximum prices by the governmnet so that prices are unable to adjust to their equailibrium lvele determined by demand and supply.
What is price ceiling ?
Draw the graph
Is a maximum price limit set below the equillibrium price,in order to make goods more affordable to people with low incomes.
Pg.115
What are the concequences of price floors
- Shortages
2.Non-price rationing
3.Underground(parallel) markets
4.Underallocation of resources to the good and allocative inefficiency
5.Negetive welfare impacts
Define welfare loss
represents social surpluus that is lost to scociety because resources are not allocated efficiently
Concequences for stakeholders due to price ceilings
- Consumers
Part gain part loose
2.Producers
Worse off
3.Government
no gain or loss
4.Workers
worse off
Define price floors
Draw the graph
is a minimum price set below the equilibrium price in order to provide income support to farmers by increasing wages
Pg.121
Concequenses of PF
- Surpluses
2.Givernment measure to dispose of surplus
3.Firm inefficiency
4.Overallocation of resources
5.negetive welfare impacts
Draw the graph of givernmnet interference to buy surplus and welfare loss
pg. 122
Concequences on stakeholders
- Consumers
worse off
2.Producers
better off
3.Government
worse off
4.Workers
better off
Draw the graph of minimum wages
pg. 125
Concequences of minimum wages
1) labour surplus
2) Illegal workers
3) Misallocation of labour resources
4) Misallocation of resources in product markets
Concequences on stake-holders
1.Consumers:
worse off
2.Producers:
worse off
3.Workers:
Some gain some loose
What is indirect tax
tax on goods and services
paid partly by consumers but paid to governmnet by producers
Why are they imposed?
Source of government revenue
Method of discouraging harmful goods
redistribute income
Improve resource allocation by correcting negative externalities
Draw Shift in supply due to tax graph
pg.129
Consequences for stakeholders
- Consumers:
worse off - Producers:
worse-off - The government
Better off
4.Workers:
Worse off
5.Society as a whole
Worse off
Draw Welfare loss and idirect tax graph
Pg.130
What are subsidies
Assistance by the givernment to individuals oe gorups of individuals through direct tax, loans tax relief, etc
Whty are subsidies granted
- increase revenues of producers
- make goods affordable for low-income consumers
- encourage production and consumption of good that are desireable
- Growth of particular industries
-encourage export of goods
improve the allocation of resources
Draw welfare loss subsidy graph
pg. 136
Concequences of Subsidies on sakeholders
1.Consumer
Better off
2.Producer
Better off
3.Worker
Better off
4.Givernment
Worse off
5.Society as a whole
Worse off (overlallocation of resources)
