Determination of price Flashcards
When will the equilibrium change
If the supply and demand curve shift
When is there contraction and extension of demand
When there is a price change
How will a specific tax shift the supply curve
It will shift the supply curve by the full amount of the tax so the new curve is parallel to the original one
What will an ad valorem tax do to the supply curve
It will shift up the demand curve by a certain percentage meaning that the new supply curve will not be parallel to the original
Why doesn’t an ad valorem tax supply curve have the same gradient as an original supply curve
Because vat will be cheaper on cheaper goods
Why are subsidies given to companies
Lower prices
Increase supply
Move to an area of high unemployment
Positives of subsidies
Lower unemployment
Encourage people to go to work
Help apprentices
Negative of subsidies
May become reliant
Misused
High tax
In some markets the government believes the price is unfair so what does the government do
Imposes a minimum or maximum price
Where is the minimum price set
Above the equilibrium and the price is not allowed to go below it
Where is the maximum price set
Below the equilibrium and the price is not allowed to rise above this level
