Government Intervention

Question 1

Specific Taxes + Graph

Answer 1

The same amount of tax per unit sold

Question 2

Ad valorem taxes + Graph

Answer 2

a percentage of the price of the good is taxed

Question 3

Calculate government revenue from a /tax

Answer 3

c + d

Question 4

Calculate Government Expense from a subsidy

Answer 4

Areas b + c + d + e + j + k

Question 5

What is a subsidy?

Answer 5

A subsidy is an amount of money paid by the government to a firm per unit of output

Question 6

Price ceiling graph

Answer 6

Question 7

Price floor graph

Answer 7

Question 8

Consequences of price ceiling

Answer 8

• Shortage
• Black markets
• Welfare loss
• Inefficient resource allocation
• Non-price rationing (eg: queuing for products or randomise the chance to buy)

Question 9

Price floor consequences

Answer 9

• Surpluses (government can sometimes buy stock)
• Welfare loss
• Inefficient resource allocation

Question 10

Polluters Pays principle

Answer 10

The poluters pays principle is the commonly accepted practise that those who produce pollution should bear the casts of managing it to prevent damage to human health or the environment.

Question 11

Tradable permits

Answer 11

Tradable permits. are quotas for pollution that can be exchanged to create a market in the right to pollute, and thereby create a tax on polluting. The emission of pollution requires the purchase of permits to pollute, and the price of these permits represents a tax on pollution.