Government intervention Flashcards
taxes definition
Obligatory contribution to the government’s revenue, either by income or expenditure on goods and services.
Can be direct = on income and profit of companies or
indirect = specific (fixed) and ad valorem
indirect tax definition
Taxes imposed on people’s expenditure on goods and services. (VAT)
extra cost of production, shift supply inward
price increase, quantity demanded decrease
the burden of a tax
tax burden on consumer and producer (revenue falls). Governments receive tax revenue, but there is also a dead weight loss to society.
producers pay a little bit of the tax so the price doesnt increase so much
elasticity and tax incidence
PED = PES : equal between consumer and producers
PED > PES producers pay most
PED
subsidies
the money that is given by specific organisations to specific companies for support.
keep low price, protect industries, guarantee supply, enable domestic production, shift S curve outward, price lower, opportunity cost for government
welfare effect
Welfare is the overall level of financial satisfaction and prosperity experienced by participants in an economic system. The welfare effect is therefore how the participants (consumers, producers, government) are effected by certain policies, government intervention etc.
deadweight loss
Loss of economic efficiency. Money that is lost in the economy (no one gains it). For example, if a tax is introduced, it is caused by the transactions that would have been made but now cannot.
rules of subsidy
PED > PES : price fall by less than half of subsidy
PED
evaluation of subsidy
opportunity cost
may be inefficient
tax payers
overproduction
Price control
price ceiling
price floor
Price ceiling
Maximum price set by government to protect consumers
below equilibrium price
price floor
minimum price set by government to protect producers
to help suppliers
protection farmers
minimum wage
problems of price ceiling
low quality product
inefficient to allocation of good
black market
attempt to reduce shortage
decreasing demand
shifting supply outward (subsidies)
direct provisions ( public means)
releasing stock
black market
illegal market where the products are traded secretly
