forms of government intervention Flashcards
price controls
government regulations establishing a maximum or minimum price to be charged for certain goods or services
price ceiling
limitation of maximum price to encourage output and consumption (protecting consumers)
price below market equilibrium
ex: rent controls
price floor
imposes a price gurantee set above equilibrium to encourage supply
protect producers
consumer surplus decreases while producer surplus increases
ex: national minimum wage ensures all workers have enough income
2 types of indirect taxes
indirect taxes is government levy on sales of goods and services
specific
ad valorem
specific tax
per unit tax
imposes a fixed amount of tax on each product sold
ex: cigarettes
diagram has parallel lines
ad valorem
percentage tax on the value of a good
ex: tarriffs and stampduty
pivot shaped
ped and pes
low ped means consumers pay most of the tax due to lack of subs
producer pays more tax when ped is elastic
high pes means consumers pay more as producers are responsive to change
subsidies
financial assistance from the government
producers are on top of consumers on a diagram
direct provision
occurs when the government directly provides or supplies goods and services
doesn’t always mean its provided for free
ex: public broadcasting services
free rider problem
exists when someone is able to access a good or service without having to directly pay for it
command and control
refers to the direct rules or laws governing an activity, stating what is legal and illegal
ex: minimum age laws for purchase of demerit goods
consumer nudges
influencing people’s choices without taking away their right to choose
ex: providing information about social norms
government failure
arises when the cost of attempting to prevent free market imperfections turns out to be greater than the social costs of the original market failure itself.
