Government intervention

Question 1

What is maximum price and its (dis)advantages?

Answer 1

Highest price a good is allowed to be sold for

Adv:
- lower prices for consumers
- fairer prices
- less monopoly power

Dis:
- reduces supply
- shortage
- black markets
- demand exceed supply

Question 2

What is indirect taxation?

Answer 2

Imposed on producers by government so consumers pay indirectly
Specific unit = levied on volume (parallel)
Ad valorem = levied on % of the value (diverge)

Question 3

What is minimum price and its (dis)advantages?

Answer 3

Lowest price a good can be sold for

Adv:
- reduce over consumption
- benefits for low income
- reduce costs to police
- closer price to MSC

Dis:
- regressive measure
- costly to enforce
- black market

Question 4

What are traceable pollution permits?

Answer 4

A limit placed on firm’s carbon emissions through issue of permits
- incentive to go green
- gov issue free permits and reduce the number of free permits available each year

Question 5

What are subsidies?

Answer 5

Amount of money given to firms by governments to encourage production and consumption

Question 6

What is incidence of tax and its (dis)advantages?

Answer 6

Refers to how burden of tax is distributed between firms and consumers

Adv:
- internalises negative externalities
- can be targeted at a specific problem good
- tax evasion is harder

Dis:
- regressive
- loss of consumer surplus
- collection costs may be high
- blunt instrument