Government Intervention and Labour

Question 1

Objectives of government interference with equilibrium prices

Answer 1

1. To promote affordability so that consumers are able to purchase essential goods and services (price ceiling)
2. To increase wages or the price of labour in the the labour market (price floor)

Question 2

Price ceiling

Answer 2

OR MAXIMUM PRICE

the govt has the power to artifically set the price in any market. When the government sets a maximum price for which a good and service can be sold, it is known as the price ceiling

Question 3

fixing a price ceiling

Answer 3

as a consequence, quantity demanded will be more than quantity supplied, resulting in shortages

Question 4

price floor

Answer 4

when a minimum wage is stipulated, the govt increases wages, increases the cost of production for producers

Question 5

increasing minimum wages/PRICE

Answer 5

leads to surpluses

Question 6

Government manipulation of supply and price stability

Answer 6

can attempt to keep market prices constant or stable by manipulating market supply:

• purchasing and storing if supply is too large (acquiring inventories)
  by the govt doing this, supply decreases and market price increases
• selling stocks from storage if supply is too small (depleting inventories)
  the govt releases what it had in storage to lower market price by increasing supply

Question 7

cartel

Answer 7

also known as producer co-operative

Question 8

what is a cartel

Answer 8

private producers group together (collude) and manipulate supply by acquiring inventories (purchasing and storing) or depleting inventories (selling stocks) in order to maintain prices at a certain level

Question 9

EXAMPLE OF A CARTEL

Answer 9

OPEC
Organisation of Petroleum Exporting Countries.

They manipulate supply and maintain price at a certain level by reducing/cutting back on production. This decreases market supply, and increases price.

Question 10

Indirect taxes and direct taxes

Answer 10

Direct taxes include income taxes, property taxes, and taxes on assets. the tax burden increases with income and is paid directly to the entity that imposed the tax. BANK GOVT

There are also indirect taxes, such as sales taxes, wherein a tax is levied on the seller but paid by the buyer.

Question 11

Indirect taxes

Answer 11

• specific taxes- where a specific amt is applied on each item eg. one dollar on each liter of gas purchased
• Ad valorem taxes- the amount paid in tax is based on the value of a good or service e.g. trinidad and tobago VALUE ADDED TAX VAT IS 12.5%

Question 12

taxes are shared

Answer 12

between consumers (0.60) and producers (0.40) based on PES AND PED. If the PED is inelastic, the tax burden will fall more on consumers

IF PES IS INELASTIC FALLS MORE ON PRODUCERS

Question 13

TAXES IN MACROECONOMICS

Answer 13

If the government increases the tax on a good, that shifts the supply curve to the left, the consumer price increases, and sellers’ price decreases. A tax increase does not affect the demand curve, nor does it make supply or demand more or less elastic.