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Economics Ib > Government Interventation > Flashcards

Government Interventation Flashcards

1
Q

Why do governments intervene in markets

A

Earn revenue, to support firms, support low income earning households

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2
Q

Price controls

A

Setting a minimum or maximum price by the government so that prices can’t adjust to their normal equilibrium level determined by supply and demand

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3
Q

Market disequilibrium

A

Market is prevented from reaching clearing price and there are shortages of surpluses

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4
Q

Price ceilings

A

When the government sets a legal maximum price for a particular good

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5
Q

Consequences of price floors and explain each

A

Shortages, non-price rationing, underground markets, welfare loss

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6
Q

Consequences of price ceilings on consumers (stakeholders)

A

Consumers gain and lose. Coz bought at less but the good is less in quantity

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7
Q

Consequences of price ceilings on producer stakeholders

A

Worse off. Less quantity, less money

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8
Q

Consequences of price ceilings on worker stakeholders

A

Unemployment

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9
Q

Examples of price ceilings

A

Rent controls, food price controls

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10
Q

Price floor

A

This is setting a legal minimum price below price equilibrium

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11
Q

Why governments set price floors

A

Support firms, to protect low-skillled labour

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12
Q

Consequences of price floors

A

Surplus, firm inefficiency, over allocation of resources, government has to dispose of surplus

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13
Q

Consequences of price floors to consumers (stakeholders)

A

Pay higher price while getting less quantity

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14
Q

Consequences of price floors to producers (stakeholders)

A

Get more money coz govt buys surplus, produces more but misallocation or waste of resources

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15
Q

Consequences of price floors to workers (stakeholders)

A

Employment

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16
Q

Consequences of price floors to governments (stakeholders)

A

They buy surplus and it’s a burden on the budget

17
Q

How to calculate consumer expenditure (PF)

A

Before PF; Pe x Qe
After PF; PF x Qd

18
Q

How to calculate producer revenue (PF)

A

Before PF; Pe x Oe
After PF; PF x Qs

19
Q

How to calculate government expenditure (PF)

A

PF x Consumer Surplus(Qs - Qd)

20
Q

How to calculate change in consumer surplus (PF)

A

B4 PF: Max - Pe x Qe divided by 2
After PF: Max - PF x Qd divided by 2

21
Q

How to calculate change in producer surplus (PF)

A

Before PF: Pe - lowest x Pe divided by 2
After Pf: PF - lowest x Qs divided 2

22
Q

How to calculate welfare loss (PF)

A

Rectangle minus f(triangle)

23
Q

Minimum wage

A

This is the legal minimum amount that can be paid to workers

24
Q

Consequences of minimum wage on the economy at large (explain each)

A

Labour surplus leading to unemployment
Illegal workers below minimum wage
Miss allocation of resources

25
Q

Consequences of minimum wage for stakeholders

A

Firms pay more
Workers earn more but could loss jobs
Consumers get less supply of goods at higher prices

26
Q

Indirect tax

A

These are taxes imposed on producers by the government but are pushed to another group usually consumers

27
Q

Two types of indirect tax

A

Excise tax (imposed on particular goods eg petrol
Taxes on all goods and services

28
Q

Why do governments impose indirect tax

A

To reduce consumption of demerit goods
Source of government revenue
To redistribute income

29
Q

Consequences of indirect tax to stakeholders

A

Consumers pay more for less quantity
Producers earn less and produce less
Governments earn

30
Q

How to calculate consumer expenditure after indirect tax

A

Before tax; Pe x Qe
After tax; Pc x Qt
The subtract before - after

31
Q

How to calculate producer revenue after indirect tax

A

Before tax; Pe x Qe
After tax; Pp x Qt
Then subtract

32
Q

How to calculate government spending after indirect tax

A

First find the tax which is PC - PP = tax
Then T x QT

33
Q

How to calculate welfare loss after indirect tax

A

Consumer surplus before tax plus producer surplus before tax minus consumer surplus after tax plus producer surplus after tax

34
Q

Subsidy

A

This is assistance by the government to individuals eg firms in form of direct cash or low interest rates

35
Q

Reasons why the government gives subsidies

A

To help start up businesses
To make certain goods affordable for consumers esp food or meds
To increase employment

36
Q

Consequences of subsidies to stakeholders

A

Consumers pay less for more quantity
However it’s tax payers money that could be spent better so opportunity cost
Producer produce more earn more
Government it’s a burden on budget

37
Q

Convulsing effects of subsidies

A

It’s the same thing(think)

38
Q

Draw all graphs

A

🙂

Economics Ib (3 decks)

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