Government intervension

Question 1

Pros of tax

Answer 1

• Demand for good will be decreased - less negative externalities
• Increase in government revenue - can redirect into other areas such as healthcare & education

Question 2

Cons of tax

Answer 2

• (if product is PED) Tax can be passed on consumers - consumers will still buy due to irrational decisions - tax is regressive because …
• producers produce less - regressive nature of tax on producer, infant industries might close

Question 3

Examples of taxation

Answer 3

100% tax rate in uae on cigarettes, vaping devices, and energy drinks, december 2017, ad valorum
55% tax in india on petol

Question 4

Pros of price ceiling

Answer 4

• Consumers save more money, increase in consumer surplus, higher disposable income
• (if good is a need) almost of of the consumers can afford it, reduces inequality in area

Question 5

Cons of price ceiling

Answer 5

-Decrease in quality of good, less revenue leads to shortcuts
- Excess demand, hidden economy, dangerous, no gdp contribution

Question 6

Examples of price ceiling

Answer 6

60usd per barrel of crude oil Russia

Question 7

Pros of price floor

Answer 7

• (if de-merit good) leads to decrease in demand
• (if vulnerable industry such as farmers) protects the industry, increase in producer surplus
• (if minimum wage it protects consumers, less poverty)

Question 8

Cons of price floor

Answer 8

• Decrease in consumer surplus, less disposable income
• discrimantes towards between lower income

Question 9

Examples of price floor

Answer 9

• Netherlands set minimum wage to approximately 14$
• russia set price floor of wheat to 250$ per metric ton